An improving economy is contributing to a gradual rebound in home prices across the country, according to mortgage giant Freddie Mac’s 2012 Economic Outlook report, released Wednesday. But there is still a way to go in the road to recovery for the housing market, the report noted.

“The housing market is showing some signs of shaking off the depression-like conditions that have plagued it for much of the past few years,” according to the report. “As if awakening from hibernation, housing starts and home sales moved to higher levels of activity.”

In fact, the signs have prompted Freddie Mac to revise its forecast upwards for home sales and originations. One economic contributor that’s helping to stabilize housing: The drop in the unemployment rate to 8.3 percent, its lowest level in three years, according to the report.

“A variety of encouraging indicators suggest that the housing market may be feeling a nascent recovery … and more neighborhoods may see a stabilization in overall demand and housing values this spring,” says Frank Nothaft, Freddie Mac’s chief economist.

Median home sale prices are up, despite a slight drop in new and existing home sales, Freddie Mac reports. About a half of the increase in housing starts has been for construction of rental apartments in multi-unit buildings to meet the increasing demand, the report notes. New rental construction, at its current pace, is expected to reach its highest level since 2005.

“Housing starts continue to run below net household formations [and will allow for absorption of existing vacant homes],” according to the report.

Source: “Freddie Mac: Economic Growth Expected to Stabilize Housing Market,” Dow Jones Newswires (March 28, 2012)

Pundits and professionals give varying answers to the question of what a housing recovery looks like. According to the Housing Guru Blog, some see it as a return to the home values seen before the crash; others define it as the annual rate of over 8 million sales. And still another camp believes that neither picture is realistic.

Economist Paul Dales at Capital Economics notes that Americans ought to pay greater attention to a different indicator — accelerated home sales. CNN Money reports that existing home sales reached 4.26 million in 2011, up from 4.19 million transactions in 2010. And in the past six months, total homes sales have gone up by 13%. The positive growth in sales is a sign that the market is recovering. Additionally, if the benchmark of health is an inventory at or below 6 months, then January’s supply of 6.1 months is good news. But it gets complicated. Some analysts were disappointed by February’s numbers, particularly with the slight fall impending home sales by one half of a percent month-over-month. All eyes will be on March’s stats.

In spite of what appears to be a sluggish recovery, housing continues to be more affordable than renting, due in large part to cheap interest rates and low property prices. Trulia reports that in 98 out of the top 100 housing markets, buying is indeed more affordable, the two exceptions being Honolulu and San Francisco. Cities that have strong long-term growth prospects and limited land to expand should expect to see a rebound in prices over time, whereas older areas with limited growth may remain static. So there’s more than one way to look at recovery, and the expectation that housing prices regain pre-recession levels may be neither feasible nor desirable.

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