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As many Americans know all too well, one of the biggest reasons the U.S. economy has struggled in recent years is the housing market. Well, it turns out the year 2012 was not so bad. There's more construction taking place. Home prices are up almost everywhere in the country. According to the Commerce Department today, new single-family home sales in the U.S. rose 4.4 percent in November. That's the strongest showing in two-and-a-half years. And although foreclosure rates do remain high in some regions, the bloated inventory of unsold homes has come down dramatically.
NPR's Yuki Noguchi reports.
YUKI NOGUCHI, BYLINE: Just a few years ago, foreclosure sale signs dotted the front yards of vast tracts of new housing in areas north of Las Vegas and around Phoenix. That is no longer the image of today's foreclosure crisis. In fact, prices are increasing the fastest in the Western states, where a huge supply of distressed homes has been snapped up by investors. That demand has driven unsold home inventory to historic lows in those areas, and it's also helped lift prices for the country overall.
SAM KHATER: It's beginning to chip away at negative equity, and negative equity is what's been driving much of the distress in the housing market.
NOGUCHI: Sam Khater is deputy chief economist at CoreLogic, a market research firm. He says he expects home prices will show a rise of more than 5 percent this year. And for every 5 percent gain in price, he says there are two million fewer underwater homeowners - meaning their homes have recovered enough value that the homeowner could refinance or sell without taking a loss.
Khater says he doesn't think foreclosures will be the dominant feature of the housing market in the new year. Instead, it will be new household formation. People who bunked with family during economic lean times are now finally starting to come back into the market. Interest rates will remain very low as the Federal Reserve continues to worry about the job market.
Khater says that is going to create a virtuous cycle of housing-related demand, consumer consumption and construction.
KHATER: I think almost irrespective of what's happening in the broader economy, unless there's a huge shock to interest rates, the real estate market should continue to recover.
NOGUCHI: Daren Blomquist agrees. Blomquist is a vice president at Realtytrac, a firm that monitors the foreclosure market. He says the foreclosure crisis now is largely centered in New York, New Jersey, Florida, Illinois and Ohio - all of which have big backlogs of foreclosure cases requiring court approval that are gumming up the pipeline.
He says because of those lengthy delays, foreclosure starts - a measure of the number of people just starting the foreclosure process - aren't showing much improvement over the last year.
DAREN BLOMQUIST: I believe that, for the most part, even the foreclosure starts that we're seeing in 2012 are not a function of a poor market in 2012 or even 2011, but are a reflection of the struggling market two or three years ago. Finally, some of that distress is coming through the pipeline. It was just delayed in some states.
NOGUCHI: Although he says he believes construction and sales and home prices will continue to increase in the coming year, there are still open questions about how long it will take for the country to get over what remains of the foreclosure problem.
Blomquist worries that recently passed laws in states such as California, Oregon and Nevada will make it more difficult for lenders to foreclose on homeowners, and could have the effect of slowing the foreclosure processes in those states again.
BLOMQUIST: It's certainly well intentioned to make sure that homeowners are not improperly foreclosed on. But we could see, in some of those states, an actual rebound in foreclosure activity sometime around the beginning of 2014, because many of those laws just took effect in the last few months.
NOGUCHI: Barring that, he says, the rest of the country should see a housing market that's healthier than at any time since the financial crisis began five years ago.
Yuki Noguchi, NPR News, Washington. Transcript provided by NPR, Copyright NPR.