CAMBRIDGE, Mass. – June 14, 2010 – Home sales and housing starts staged an uneven comeback starting in early 2009, according to the State of the Nation’s Housing report released today by the Joint Center for Housing Studies of Harvard University. Improved affordability for first-time homebuyers and extraordinary government intervention helped spark a turnaround and drove all of the increase in existing home sales last year, but record foreclosures continue to pressure markets and millions of homeowners.

Despite some positive signs early in the spring buying season this year, housing continues to face significant challenges. “Many factors are still weighing heavily on the market,” says Nicolas P. Retsinas, Director of the Joint Center for Housing Studies. “Elevated vacancy rates, record foreclosures, the expiration of the homebuyer tax credit, and continued high unemployment are all causes for concern.”

Very low mortgage interest rates and recovering labor markets, however, should be enough to shore up sales and housing starts once an expected dip due to the expiration of the federal homebuyer tax credit passes. “If history is a guide, what happens with jobs will matter the most to the strength of the housing rebound,” says Eric S. Belsky, Executive Director of the Joint Center for Housing Studies. “Right now, economists expect the unemployment rate to stay high, but if employment growth surprises on the upside or downside, housing numbers could too.”

Even if the recovery in sales and residential construction flourishes, the report warns, the adverse consequences of the recession and the financial crisis will linger. An estimated one in seven homeowners have homes worth less than what they owe on their mortgages and nearly 5 million need their home prices to rebound by 25 percent before they are back above water. In addition, it will take time to work through all the homes in foreclosure.

Despite falling home prices, loan modifications, and softening rents, the downturn did not reduce the number of households spending half or more of their income on housing—18.6 million in 2008. Instead, the share with such severe housing cost burdens climbed to a new height.