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2012 Housing Outlook: A Slow Recovery

That's the bad news. The good news is that the housing market will improve in 2012, even if it does so later than investors might have hoped. A review of the CBO's factors explains why. We know that the recession has hit young adults the hardest, with high unemployment rates and hefty student loans battering them from both sides. Twentysomethings who have moved back in with their parents and put off marriages and new homes are bound to get restless eventually. When they do, the number of new households in the U.S. will once again start to climb.

Similarly, high unemployment rates and fear of losing money on underwater mortgages have kept many homeowners in their current residences, and millions of foreclosures have glutted the market with empty homes. As the unemployment rate slowly shrinks -- the U.S. reportedly added more than 650,000 new jobs in the past three months -- home sales are likely to rise. Foreclosed properties will still glut the market, but most of those homes will eventually find new owners.

The challenge, of course, is projecting any kind of rebound in the housing market when the economy is still so vulnerable to outside influences. Another eruption of the European debt crisis, for example, could quickly destroy the small gains of the past few months. For the time being, would-be real estate investors would probably be smart to focus on regional markets that are recovering more quickly, and to steer clear of higher-end luxury properties that may be more difficult to sell.

Developers might be wise to focus on building more modest homes than the McMansions that currently sprawl across too many American suburbs. And retailers who sell home goods should probably continue to emphasize home improvement and redecorating over furnishings for new homes for the next six months or so. Whether consumers plan to stay in their existing homes or refurbish them for sale, there will probably be a decent market for paint, blinds and carpet.

2011 has been tough, and it appears that the first half of 2012 may be, too. But by the end of next year the troubles in the housing market may become just a bad memory.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.
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