While the housing market outlook is brightening and it seems we're just around the corner from the light of day, as Bruce Springsteen wrote, there's still darkness on the edge of town. What follows are five housing-market developments that we'll need to see before we can say a recovery is in full swing:
1. THE COST OF A LOT
When a market devalues new, well-outfitted homes by 50 percent and more, rest assured it isn't paying any mind to the value of undeveloped land or even improved lots. That market blindness - and lenders' reluctance as market makers to extend land loans as a result - has led to a slashing of prices that will only come to light 18 months from now at the rate it's been ignored. We may soon see the federal government offering 3 percent lot loans to first-time buyer/builders.
2. THE TOWEL-TOSS RATE
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In the past year, the soaring U.S. foreclosure rate was driven primarily by a single group - homeowners who paid inflated prices near the market top and bailed when they couldn't meet resetting ARM payments or realized their mortgages far exceeded their homes' value. Job losses are accounting for a large percentage of more recent foreclosures. And some housing markets that saw only modest gains in the past 15 years are enduring price drops - just as many of the hardest-hit markets are turning around. The key variable in the equation: The pace at which median housing prices rise in the year ahead.
3. TEN BOOMERS BOOMING
Baby boomers planning to downsize from empty nests or move to retirement locales have put the move-up market into cardiac arrest by sitting tight, awaiting a recovery. Shell-shocked by a massive loss in home equity they hoped to pocket on houses they owned for decades, they're ignoring remarkable trade-off bargains in retirement states. When boomers recognize the steep discounts in what they'd be buying - rather than dwelling on the lost value of what they'd be selling - and lenders enable market equilibrium rather than frustrate it, the ailing housing market will get a well-needed shot of youth serum.
4. WHAT, YOU WANT A HOME-EQUITY LINE?
Just as the shuttering of the home-equity-loan market contributed to the economy's demise by putting the brakes on runaway consumer spending, its reopening will be the ultimate sign of a housing rebirth. Yet it may be spring of 2011 or beyond before lenders are convinced that home-equity levels are solid.
5. THE VALUE OF HOME IMPROVEMENTS
Many Americans still believe it isn't worth putting money into their homes because they'd just be throwing good after bad. But our long-suppressed eagerness to improve our living space will eventually give way to a spending boom that will signal the housing market's shift from recovery to full-growth mode. The key indicator there: Will we replace a shot kitchen faucet with a $150 model or the cheapest one on display?