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If you go strictly by the numbers, there's evidence that the great U.S. real estate crash may be over. But beyond the numbers, the scene is still grim.

Sales of new houses jumped 11 per cent in June - the most in eight years - and the number of unsold properties is finally edging down.

Housing starts rose in May and again in June. The scenario for existing homes is similar. And U.S. monthly home prices appear to be stabilizing, according to the Standard & Poor's Case-Shiller index of 20 major cities, which edged up in May for first time since mid-2006.

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But the numbers don't impress Andrea Gaus, a real estate agent with Long & Foster Cos. in Gaithersburg, Md., a middle-class suburb of Washington.

"No, it's not better," she says bluntly of the housing market.

Houses are taking months to sell. Many buyers are having trouble getting financing as lenders and appraisers struggle to figure out what houses are really worth in the wake of the collapse.

And aside from speculators and first-time buyers - lured by depressed prices and an $8,000 (U.S.) federal tax credit - the overall market remains very soft.

"Everything is hard work," says Ms. Gaus, who has taken a part-time job at a department store to earn extra cash.

And this is in the nation's capital, historically one of the most stable real estate markets in the United States.

The reason Ms. Gaus isn't seeing a turnaround is because the "freefall" in prices isn't over, said Dean Baker, co-director of the Center for Economic and Policy Research in Washington.

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"It would be wrong to imagine that we have hit a turning point in the market," he said. "There is still an enormous oversupply of housing, which means that the direction of house prices will almost certainly continue to be downward."

Mr. Baker says the inventory of unsold houses - now at the equivalent of eight months' worth of supply - is misleading because the number of vacant rental units is going up. That suggests many owners have given up trying to sell their homes and have put them up for rent instead, he said.

If accurate, it's sobering news. The collapse of house prices in the United States helped trigger the global recession, and until the market recovers, U.S. consumers are unlikely to be a major force in the global economy.

Uncertainty is palpable. Buyers are staying on the sidelines because they don't know if they'll have jobs in a few months and, by then, prices could be even lower. Various government efforts to stoke the market - including foreclosure moratoriums and mortgage modification programs - have not been wildly successful.

Until the demand recovers, the housing slump is unlikely to end.

So what will it take for a solid recovery in real estate to take hold? Economist Ed Yardeni of Yardeni Research in New York said it all starts with unemployment, now at 9.5 per cent nationally, and widely expected to top 10 per cent by the end of the year.

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He said home values closely follow the cost of house rentals, which in turn tracks the jobless rate, all of which points to a gradual recovery in housing. "Houses don't trade like stocks, which tend to make V-bottoms," Mr. Yardeni said. "Home prices tend to make L-bottoms."

A quick rebound in housing would require a return to the mortgage market of 2006, when lenders ignored swelling household debt levels and dodgy credit histories, said Timothy Duy, an assistant professor and director of the Oregon Economic Forum at the University of Oregon.

And that's unlikely, Prof. Duy said. "I can't see [a housing rebound]unless conditions revert back to the 'Let's give everyone one with a pulse a loan' era."

The impact of still-rising unemployment is also hitting foreclosures. The first wave of Americans losing homes occurred mainly in overheated real estate markets, such as California and Florida, where exotic variable-rate mortgages were sold to buyers with poor credit. The latest wave of foreclosures and forced sales is happening because homeowners are losing their jobs, leaving them unable to pay their mortgages.

Also holding back the recovery is the sheer magnitude of the housing implosion, which is shaping up as the worst on record. Moody's is now projecting that the S&P/Case-Shiller Home Price Index - which has tracked values dating back to 1890 - will fall 40 per cent from its peak in 2006. It has declined roughly 30 per cent so far. Before this slump, the largest correction spanned the 1916-to-1932 period, when prices tumbled 37 per cent.

It will likely take a full decade for prices to regain the lofty levels of 2006, said Moody's economist Celia Chen. She points out that Japan's property market lost half its value in the aftermath of the bursting of that bubble in the late 1980s and has shown few signs of recovery.

Ms. Chen said no U.S. region or state is escaping the slump. And the states where the boom-and-bust cycle is most pronounced will take the longest to recover. It could be 2011 before the housing markets bottom out in hard-hit states such as Florida, Arizona, California, Nevada and New York, she said.

Meanwhile, house prices are still falling - though the pace of the decline appears to be slowing, said David Blitzer, head of the index committee at Standard & Poor's, which compiles the Case-Shiller index. "There is a clear inflection point," he said.

But an inflection point isn't a turnaround. "Remember that on a year-over-year basis, home prices are still down 17 per cent on average across all metro areas," Mr. Blitzer said.

"So we likely do have a way to go before we see sustained home price appreciation."

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More

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