The Wells Fargo Securities Economic Chartbook is a thoughtful analysis of the broader economy and its impact on specific sectors of the economy. This month's 13-page housing chartbook is the latest analsysis of what's happening in the housing market. Here's the summary, but remember that all markets are local and this is a NATIONAL analysis:

"Optimism about near-term economic prospects has increased considerably since the November midterm elections. Some of the improvement is due to policy changes, including the Fed’s decision to purchase $600 billion in Treasury securities and the tax compromise between President Obama and the newly elected Republican Congress. Stronger holiday retail sales, surging exports, slightly better news on employment, along with a rebounding stock market have also done away with any lingering fears of a double-dip recession. One area that has not improved is housing. While sales of new and existing homes rebounded a bit in December, the underlying demand for homes remains exceptionally weak and prices are falling again.

The lack of a spark in the housing market is understandable. Employment took a huge hit during the recession and has been slow to recover. Unemployment remains stubbornly high, particularly in states where housing is most overbuilt, such as Nevada, Florida, Arizona, California and Michigan. Long-term unemployment is another huge drag, with an astonishing 6.44 million people out of work for six months or more. Government support for housing through tax rebates, the Fed’s purchases of mortgage-backed securities and various mortgage foreclosure mitigation programs has also either ended or is in the process of winding down. In addition, foreclosures, which slowed late last year amid concerns about documentation issues and political pressures, have picked back up, which means distress sales will increase during the first part of 2011.

The combination of weak underlying demand, reduced government stimulus and rising distress sales has already begun to pull home prices down again. We now believe even the modest recovery we were projecting for home sales and new home construction this year will be pushed out even further, as homebuilders have largely been pushed to the sidelines by competition from bargain-priced existing homes. One way to see this is to compare sales of new homes and existing homes. The two series tend to move together, but have diverged significantly in recent years."

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