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In a perfect market, home prices, foreclosure rates are stable p2

We are discussing the real estate market's recovery -- the very slow recovery that industry analysts say is a better sign than a rapid rise to the boom's height of heights would be. The market soared, but it got too close to the sun. The market meltdown was inevitable; the financial crisis just sped up the process.

As home prices have increased and the shadow inventory of homes in foreclosure has diminished, the market has settled into what analysts and professionals believe will be slow and steady growth. And slow and steady is just right.

A slow and steady housing market recovery, however, depends on a slow and steady economic recovery, and many potential homebuyers are still struggling. Some are weighed down by student loan debt, others are looking at salary increases that don't touch the rising cost of living. Some businesses have not given raises for a few years as they struggle to stay afloat.

There is also the issue of "negative equity," or "underwater mortgages." Home prices may be climbing slowly and steadily, but borrowers have yet to recoup enough value to make their homes' value match the mortgage. In Chicago, about 1 in 3 mortgages is underwater.

Also, big cities like Chicago are not experiencing an across-the-board real estate recovery. Home values vary by neighborhood, and some neighborhoods are seeing home values decline as income levels stagnate. These homes could go on the market, but these homeowners may be less likely to purchase new homes -- they haven't the savings for a down payment -- than to move to rental properties.

Also on the horizon is the end of the federal Home Affordable Modification Program. The program was an emergency measure, designed specifically to sunset after five years. That means interest rates will begin to increase for the homeowners as early as 2015. These homeowners may shy away from a traditional refinancing because of the costs involved and the stricter lending rules.

What will the market look like when the foreclosure crisis and the economic meltdown is behind us? What housing experts and advocates would like to see is a major overhaul of the country's mortgage-lending system. It took a long time to make it the convoluted muddle it is today, though, so it may take a long time to transform it into something that makes sense to consumers, lenders and regulators.

Source: Alaska Dispatch, "Could 2014 be the year the housing market really recovers?" Mark Trumbull (The Christian Science Monitor), March 23, 2014

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