Are home prices headed for another drop?

One force putting a floor under prices is affordability. Prices have fallen far enough in many markets to lure people to buy rather than rent.

Do price trends vary a lot by region?

Yes. That's true whether you're comparing states or metro areas within states. As the map shows, prices rose in some states in the past year. The deepest problems remain concentrated in Western boom states, Florida, and Michigan.

The timing of price changes differs by geography, too. California and Florida have seen similar price declines since the recession began, but more of Florida's drop occurred over the past year. Idaho looks bad on the map, but its price declines in 2008 were not nearly as bad as those in neighboring Nevada.

Will government efforts to reduce foreclosures help?

That's still unclear. The Obama administration has ramped up efforts to get lenders to consider writing down the principal on loans, but the rate of redefault on modified loans tends to be high.

The Center for Responsible Lending predicts that 9 million homeowners, or nearly 1 in 5 mortgage holders, could go through foreclosure between 2009 and 2012.

The "shadow inventory" of homes – including those where borrowers have become delinquent but are not yet in foreclosure – could take three years to work through, researchers at Standard & Poor's said in February.

What else will affect home prices?

Jobs, jobs, jobs, and also mortgage rates. The recovery appears to have picked up enough momentum that the economy is adding jobs rather than losing them. The bigger the labor market gains, the better it will be for the housing market.

One worry is that Europe's debt crisis will slow the global recovery that's under way. That's a trouble spot to watch, but most forecasters don't expect a US relapse into recession.

Demand for homes hinges not just on buyer incomes, but also on credit conditions.

The Federal Reserve recently ended one temporary program designed to prop up the housing market – its buying of US mortgage bonds. But Europe's troubles have actually had a beneficial effect on US interest rates. A typical 30-year fixed-rate mortgage was 4.78 percent as of May 27, according to the firm Freddie Mac. Credit, however, remains relatively tight.

Related:

Home values headed to new lows?

Home-buyer tax credit: more questions answered

With foreclosures rising, why is housing market improving?

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