All the signs are there for continued improvement in the economy as well as housing markets, but it will be several years before real estate practitioners can expect to see markets returning to equilibrium, two of the country's top economists told REALTORS® this week.

By the end of this year, practitioners should see 5.4 million existing-home sales and home price growth of up to 3 percent, said NAR Chief Economist Lawrence Yun.

Already many markets are seeing home price increases, including San Diego, where prices are up some 16 percent. Orange County, Calif., and Boston are two other strong areas, with price increases of 10 percent to 12 percent, Yun said.

Did the Tax Credit Make a Difference?

The federal home buyer tax credit has been essential for getting buyers back into the market, stabilizing inventories, and shoring up prices, Yun said. He estimated that the credit -- which is available to buyers who had properties under contract by April 30 and who close on their sale by June 30 -- brought more than 4 million households into the market since it was enacted about two years ago. That includes about 1 million who otherwise wouldn't have bought.

More fundamental to the improving housing picture is the increasing strength of the economy, which is on track to expand by 3.1 percent this year after shrinking 2.5 percent last year, Yun said.

With inflation tame and interest rates low, businesses are enjoying robust profitability and their balance sheets are in the best position they've been in for years, said Mike Zandi, chief economist for Moody's That's helping with employment, which about two months ago turned positive for the first time since the economic crisis began and is now seeing about 125,000 net jobs added a month, he said.

Working Through the Inventory

Even with those good signs, practitioners are unlikely to see home prices reach a level that balances with the country's growing population for several more years, maybe not until 2014, Zandi said. It'll take that long to work through the country's large overhang of inventory from high foreclosures.

There are almost 4.5 million distressed residences in the United States today, meaning the homes are in foreclosure or the owners are several months behind on their payments, Zandi said. The housing market can't return to equilibrium - which Zandi defined as something over 7 million sales a year to meet population demand - until that overhang is addressed.

In the meantime, those distressed homes are keeping downward pressure on prices. He doesn't think values will start to show any signs of improvement across the board until next year.

What Could Jeopardize Recovery

Both Yun and Zandi cited the federal government's budget deficit as a risk that could derail the economy if a credible plan for addressing it isn't put forward. Zandi said the government's emergency intervention to stem the mortgage crisis was necessary -- despite sending the deficit higher -- because without it the economy would still be in a crisis and interest rates would be much higher, making recovery that much more difficult.

Now, he said, the government must make it a priority to rein in the deficit.

Yun said what's happening in Europe, as Greece wrestles with its credit crisis, also poses risk to the United States. If Greece defaults and other countries run into trouble, the global market for U.S. mortgage-backed securities could be hurt badly, forcing up interest rates and driving down home sales.

The crisis in Greece could also be a preview of what the United States will face if it doesn't turn its attention to deficit reduction.

- By Robert Freedman