Real Estate February 23, 2010, 10:10PM EST

Housing Upturn Proves Elusive

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Crucial for the housing market in 2010 is the jobs picture and the amount of homes coming onto the market.

"At 10% unemployment, it's difficult to think Americans are going to be out there on the market for homes," says Brian Levitt, an economist at OppenheimerFunds. The U.S. unemployment rate was 9.7% in January, and economists expect it to edge up to 9.8% in February.

Foreclosure Supply

Another concern is how many foreclosed houses will be pushed onto the market in 2010, flooding markets with unwanted supply. "There is a fair amount of shadow supply waiting in the wings," Hembre warns.

A Feb. 16 analysis by Standard & Poor's estimated the number of troubled mortgages "will likely take about 33 months—or nearly three years—to clear at the current rate of liquidations." A recent slowdown in foreclosed homes is temporary, the report said.

The state of the housing market has large ramifications for the rest of the economy.

Home Depot (HD) Chairman and Chief Executive Francis Blake often notes the impact of residential real estate spending on his company's business. After the No. 1 home-improvement retailer reported earnings on Feb. 23, Blake told analysts such spending "has stopped its dramatic and historic decline." However, he added, "the housing industry remains at distress levels, mortgage defaults continue to increase, unemployment remains high, and our pro customers"—contractors who buy supplies at Home Depot—"are still under pressure."

Sales of furniture, appliances, and electronics all are linked to housing, economists note. And home prices can weigh on consumer confidence, which unexpectedly fell on Feb. 23 to its lowest level since April.

"It will be very difficult to have a strong economy without housing kicking into gear," Rosenberg says.

Action Economics Chief Economist Michael Englund is not so gloomy. He says housing is "on a slow but steady recovery," driven in part by the natural life cycle as people form families, move up, and retire and downsize their homes. After the rough conditions of 2009, "my assumption is we have nowhere to go but up from here," he says.

Steverman is a reporter for Bloomberg BusinessWeek's Finance channel.