If you're a homeowner these days--and almost two thirds of Americans are--the housing market generally doesn't fall into the realm of pleasant dinner conversation.
The once-booming industry has been bruised and bloodied from nearly every angle: Home prices have plunged 30 percent nationally over the past five years, millions of Americans have lost their homes to foreclosure, and millions more are on the brink with underwater mortgages. Still others are seriously delinquent on their home loans.
Things are bad, maybe the worst they've ever been, but there's likely to be more pain before there are any real gains for the housing market, experts say, primarily because of the giant inventory of homes on the market and the certainty more will be coming through the pipeline over the next few years.
Still, the U.S. economy is resilient. The recovery has absorbed a debt-ceiling fiasco at home, a near financial meltdown in Europe, and political chaos in the Middle East. The job market is also improving, consumers are spending more, and corporate balance sheets remain healthy, all of which are critical for the housing market to rebound.
The remaining puzzle piece is time and how much of it the housing market will need to recover. Here are some other hurdles the housing market needs to overcome before a rebound takes root:
Job growth/broader economic gains. After a bumpy several months, the employment outlook has started to improve, with the private sector adding more than 200,000 jobs in November, according to payroll firm ADP. That's certainly good news, but we're not out of the woods yet. The national unemployment rate is still sky high at 9 percent and the pace of job growth needs to double before it translates into the broader economic growth needed to bolster a housing recovery.
"The situation in the housing market is tightly bound with what's happening in the broader economy," says Stan Humphries, chief economist at Zillow. "A broader economic recovery is going to have to precede a recovery in housing. Really, job growth is so essential for housing demand."
Particularly important is the unemployment rate among young Americans between 25 and 34 years old.
"These are the people that are forming households and buying their first homes," says Jed Kolko, chief economist at Trulia. Due to the bad economy, more young Americans have been "doubling up," moving in with friends or living at home to ride out lean times. That's put the kibosh on demand, according to some, which is part of the reason why there's still so much housing inventory to work through.
Clarity on foreclosure processes. A group of states has banded together to sue lenders and mortgage servicers over what they claim to be improper foreclosure practices. Awaiting rulings in those suits, lenders have held back on foreclosures, slowing the pace and increasing the backlog. The longer it takes to get clarity on how to proceed with foreclosures, the longer it will take to clear that inventory and the longer it will take for housing prices and the broader housing market to recover.
Faster foreclosure processes. Getting homes that are likely to be foreclosed upon or homes that already are in foreclosure to the market is key to exposing the nation's shadow inventory, which has been keeping prices depressed around the country.
"The longer this goes on, the longer the foreclosure inventory will perpetuate and the longer we'll be stuck in a rut," says Anthony Sanders, professor of real estate finance at George Mason University.
The attorneys general investigation has slowed down the foreclosure process, lengthening the time it takes to get delinquent loans through the pipeline and on the market to be sold. But speeding up the foreclosure process is a double-edged sword. More foreclosures will further bloat the housing inventory, driving down prices even more.
But that's to be expected, says Chris Flanagan, strategist at Bank of America. "The implications of what we're seeing is that you have to have prices go down before they go up," he says. "At a minimum, things need to make it through the pipeline. Having it sit there is a dead weight on the economy and it ultimately creates more downside potential because of the backlog."
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.
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.