From the sddt.com:

Elizabeth Duke of the Federal Reserve board of governors was invited earlier this month to deliver a speech to the National Association of Realtors titled, “Prescriptions for Housing Recovery.”

Her opening comments were painfully honest.

“It is difficult to think of a single prescription that by itself will generate a sustainable recovery in housing,” Duke said. “At the same time, I do see policies that I believe will help reduce the shadow inventory of houses in the foreclosure pipeline. I also see policy actions that could be taken to improve credit availability for potential homebuyers, and, in turn, demand for houses.”

Her presentation comes at a time when the housing market is starting to show some legitimate signs of recovery. Recent reports on April existing and new home sales both suggested improving sales and price trends.

The National Association of Realtors said sales of existing homes rose 3.4 percent to an annualized rate of 4.62 million units. At the same time, median prices rose 10.1 percent in April compared to the same month a year ago.

Here in the West, the numbers were even more impressive. Sales rose 4.4 percent, and prices were up 15.9 percent to $221,700.

“It is no longer just the investors who are taking advantage of high affordability conditions,” said Lawrence Yun, chief economist at the association. “A return of normal home buying for occupancy is helping home sales across all price points, and now the recovery appears to be extending to home prices.”

The main source for optimism in the marketplace is affordability. With prices still near eight-year lows and mortgage interest rates at all-time lows, the ability to qualify as a buyer has improved dramatically.

“A brighter economic picture, coupled with record-high housing affordability, pushed the spring home buying season off to a strong start,” said LeFrancis Arnold, president of the California Association of Realtors. “With a continuing improving economy and interest rates declining to new record lows in recent weeks, we should see a steady improvement in the housing market throughout the end of the year.”

The April report from the California Association of Realtors shows median home prices in California rose 4.7 percent compared to the same month in 2011 to $308,050, the first time prices have topped $300,000 since December 2010.

San Diego County properties, however, are still below year-ago levels with April median prices at $369,910, down 2.2 percent.

“House prices have been weighed down by the large proportion of distressed sales, that is, sales resulting from foreclosures and short sales, and the specter of the large shadow inventory currently in the foreclosure pipeline,” the Fed’s Duke said. “High levels of unemployment, weak income growth and negative equity have contributed to a staggering 2.2 million loans in the foreclosure process and another 1.7 million loans that are three or more payments behind.”

That concern is reflected in another report from Zillow, a real estate information service. It reports nearly 16 million homeowners are underwater on their mortgages in the first quarter of 2012, owing a collective $1.2 trillion more than their homes are worth.

However, the same report also notes nine out of 10 upside-down homeowners continue to make their loan payments on time, and about 40 percent are less than 20 percent under water, suggesting a housing recovery could turn their loans positive in a relatively short period of time.

One consequence of this situation is the pressure it puts on homes for sale inventories. With little new construction activity in the pipeline, a lack of traditional sellers will squeeze the supply of homes at a time when buyers are expressing renewed interest.

“With almost one-third of homeowners with mortgages underwater and unable to sell their homes, inventory is having a hard time keeping up with increasing demand in many areas,” Zillow chief economist Stan Humphries said. “We’ll continue to watch this signal as increasing home values turn from a blip into a trend.”