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Forces Influencing the Housing Market Recovery

Working paper #688
Kenneth T. Rosen

Home prices increased in many metropolitan areas during late 2009 and early 2010, leading many to question whether prices would continue to increase or decline again in the near term. Because of several fundamental improvements, it is apparent that the single-family housing market is in the midst of a real and sustainable recovery. Government measures to limit foreclosures and maintain high affordability levels are slowly working to sustain homebuyer demand and keep families in their homes. Additionally, a minimal amount of new construction has limited the number of available homes even as sales activity is gaining momentum. Although a robust recovery faces significant headwinds, including high unemployment and the potential for continued foreclosure activity, the combination of limited supply and increasing demand, driven by improvement in fundamentals and high affordability, leads to the conclusion that home prices will continue to increase.

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