Foreclosure activity in the U.S. hiked to reach 11 percent in May, up 2 percent from the figures of April but still down 29 percent from the figures recorded a year ago, according to the data released by real estate intelligence firm, RealtyTrac.com.

The data reveals that foreclosure starts increased 4 percent in May but were still 33 percent lesser than the figures of the same period in 2012.  While 6 states saw rise in the foreclosure activity on a month-on-month basis, repossession activity was up in 14 states on a year over year basis.

It was also observed that REO activity in judicial states areas where any foreclosure case needs to be reviewed judicially before being processed went up 13 percent while that in the non-judicial states hiked 9 percent. Apparently, five judicial states made it to the top six list of foreclosure activity, marking a new trend.

"Foreclosure activity continued to bounce back in some markets where it may have appeared the foreclosure problem had been knocked out by an aggressive combination of foreclosure prevention efforts over the past two years," Daren Blomquist, vice president of RealtyTrac said in a statement.

The spike in foreclosures comes as good news for the market as supply has been relatively thin with demand growing in the wake of a constantly improving properly market. Experts believe that banks are keener on foreclosures now as demand is high and they could easily bag a great deal at foreclosure auctions for these homes.

"Given the shortage of inventory and rising home prices, banks have little motivation to hold back on any foreclosures, so homeowners who have not been making payments for several months or even years without a foreclosure notice should expect to see that notice coming and would be well-advised to list their home as a short sale if they have no other alternative to avoid foreclosure," Craig King, Chief Operating Officer of Chase International Brokerage added in the statement.

The increasing rate of foreclosures explains the rise in availability of homes. According to Zillow, the crunch is less severe when compared to the beginning of the year.

But doesn't that also mean more number of homeowners are underwater?

According to the May data at Inman.com, nearly half of all homeowners of the U.S. having a mortgage are underwater. About 22.3 million owners don't have the capacity to sustain their mortgage loan. Meanwhile, the mortgage interest rates are also rising. Rates rose for the sixth straight week in June with the 30-year mortgage rate increasing to 3.98 percent.

What effect will it have on the housing recovery?

"While increasing rates may damp home sales temporarily we do not think it will derail the recovery. A powerful counter to rising rates is the improvement in expectations about the housing market, as well as low inventory," Michelle Meyer, a senior U.S. economist at Bank of America Corp., New York, wrote in a note to clients, reports Bloomberg.