Housing data begins to show signs of recovery

CLARKONOMICS: There's some good news on the housing front that proves we may not be out of the woods yet, but we're getting closer.

Home prices have actually gone up over the last nine months on average around the country. The rise in prices has been about five percent from the market's low in the early spring of 2009.

But here's the bigger news: If you go back to the peak of the bubble in 2006, housing was 50 percent overvalued on average. Since then, the average price of a house has dropped by a third. So, we're just about back to fair value.

For too long, the amount of income that it took to afford a typical house had gone out of whack. That's why "Pick-A-Payment" plans became popular, especially in California's Inland Empire and Central Valley regions. Meanwhile, Las Vegas, Phoenix and Tucson all had speculative activity leading to the bubble.

But as with any bubble, there must be a bust. Right now we're working our way through that bust. Loans were made to people who couldn't afford the payments. That has led to continuing delinquencies, compounded by unemployment.

Looking forward, The Wall Street Journal has offered a forecast for foreclosures. The number of foreclosures peaked a year ago and is expected to trend down over the next three years.

In some locations, bidding wars for foreclosures are erupting. That's a clear sign that investors have called a bottom to the market. In many markets around the country there is clear recovery underway.

Yet one city that never bubbled and has little hope of recovery is Detroit. There are no jobs and no prospects of jobs, which means there can be no support for the housing market.