Empire Economics has recently performed a significant amount of research on the current housing market conditions, and has identified the key economic factor underlying the future recovery of the housing market.  Specifically, after systematically analyzing the role of numerous economic and real estate variables under a broad array of scenarios, the key factor that will drive the housing market recovery is Employment Growth.

Although housing prices are currently regarded as being affordable, based upon household incomes and mortgage rates, the high level of unemployment is constraining the market demand for homes – there are not a sufficient number of people employed to purchase the supply of homes that is currently available.

Accordingly, as employment growth occurs, the housing market recovery will occur in the following manner:
- Properties under mortgage duress, including bank owned and foreclosures, will clear the market.
- Then, as market values stabilize, and prices rise, the conventional sales of existing homes will rise.
- As the inventory for existing homes returns to normal, prices will start to appreciate.
- Higher prices will provide support for new developments, as these will meet pro-forma requirements.

The following graph illustrates that when the aggregate levels of employment attain new highs (the green portion of the line), then this provides the driving force for housing prices to appreciate at moderate rates (the blue bars being positive).  Conversely, when employment is declining (the red portion of the line), then housing prices decline (the blue bars being negative). Finally, when employment growth is replenishing the jobs that were previously lost (yellow part of the line), housing prices are stable or rise slightly.