Road Map to a Housing Rebound

What needs to happen for the housing market to heal.

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Reduced inventory. Next on the to-do list is to clear out the massive housing inventory the United States has. Especially with the influx of homes likely to come on to the market when foreclosure processes finally get ironed out, we're going to have a lot of stock to deal with. But reducing the supply of homes should help boost prices in the long run, and price appreciation is good for the housing market.

"There really has to be a way to clear the excess inventory out there," Sanders says. "[Banks and servicers] know how to do it. It's called lower the price. The problem is they don't want to lower the price too much because they're very nervous about taking huge losses." Huge losses sometimes leave the taxpayer on the hook, making the entire issue intensely political, Sanders adds.

[Huntsman: Shut Down Fannie and Freddie.]

Other experts say the government has a different role, a role facilitating financing for government- and bank-owned properties. The Federal Housing Finance Agency has thrown around a couple of proposals for dealing with these assets, but nothing has been finalized.

"It would help a lot to have some government-sponsored financing of these [properties]," Flanagan says. "It would help them in the end if they allowed more investors to come in."

Converting foreclosures into sales would help stabilize neighborhoods and home values, Flanagan adds, and, in some cases, improve the availability of rental homes, a sector of the market that has seen an uptick in demand as the foreclosure crisis hit.

Increasing rents. The completion of the cycle comes when rent increases to a point where it's more attractive to buy a home than to continue renting. With affordability at record levels, when the jobs market recovers and the economy finds its footing, more renters should turn into homeowners, which will reduce the supply of homes and help stabilize prices.

mhandley@usnews.com

  • Huntsman: Shut Down Fannie and Freddie.
  • Pending Home Sales Surge.
  • See a slide show of 6 ways to fix the housing market.