This is because most statistical releases focus on the market for single-family homes, the segment that is coming back to life. Conditions in the other segment—multi-family housing—have never been worse. Add the two segments together, and the housing market is still improving, but ever so slowly.

The market for multi-family homes (i.e., the rental market) is being hit on two fronts. Tight credit and overbuilding are hammering multi-family housing construction. As a result, new construction has nearly ground to a halt. In June, multi-family starts tumbled 25.8% to 111,000 units (annual rate)—just above April's all-time low of 91,000 and 74% below the 423,000 units started in June 2008. One consoling note about June's dreary numbers is that they cannot sink much further.

The rental market is also being hurt by falling house prices, which is swaying renters into become homeowners. As a result, rental vacancy rates are going up—indeed, the national average jumped 0.6 percentage point to 10.6% in the second quarter—a record high (data start in 1956). This shift into homeownership is mainly talking place in the West, where the rental vacancy rate has risen from 6.9% to 8.9% over the past year. Rental vacancy rates might rise even further this year because of the tax credit for first-time homebuyers, which is targeted mostly at renters, and which expires on November 30, 2009.

The good news is that the market for single-family homes is turning around. Single-family starts and permits, new home sales, and existing home sales are all trending up nationally and in most regions of the country, while inventories of new and existing homes are starting to come down. But the biggest surprise has been the recent signs of stabilization in home prices. Year-on-year, home prices are still dropping at double-digit rates. But if one looks at recent monthly growth rates, a bottom appears at hand. According to the latest Case-Shiller readings on 20 cities, on a seasonally adjusted basis, house prices increased in eight cities during May. In Washington D.C, Cleveland, and Dallas, seasonally adjusted prices increased for the second straight month; in Denver, they rose for the third straight month. Overall in May, the 10- and 20-city indices slipped only 0.2% (the smallest percentage declines in over two years), which rounds to zero. (Not all of the recent news is good, however; prices in Las Vegas and Phoenix are still plunging.) Case-Shiller's numbers are consistent with the Federal Housing Finance Agency’s latest numbers, which showed house prices rising 0.9% in May, with five of the nine census regions reporting higher prices. The National Association of Realtors' median house price, on a seasonally adjusted basis, is also inching up.

Stabilizing home prices matter for a numbers of reasons. First, falling home prices are a drag on consumer spending because of the negative wealth effect (we should stress that economist's views on the strength of the wealth effect are all over the board). Second, stabilizing prices will put a lid on the number of home mortgages that are "underwater." To some extent, this will contain the rise in foreclosures. Third, stable prices will give home sales a boost by nudging "fence sitters" (those waiting for prices to hit bottom before buying a house) to make a move. Finally, stable prices will help banks holding "toxic securities" to mend their balance sheets. Stable prices will reduce the number of defaults, enhancing the value of these securities; they will make also it easier to value the securities.

Just as significant as the recent stabilization in house prices has been the steady recovery in single-family housing construction. Single-family permits—arguably the most important monthly housing statistic—increased 5.9% in June, to an annual rate of 430,000 units (which was up from January's all-time low of 342,000). And permits are improving in all four regions of the country. Single-family housing starts are improving in tandem with permits.

Not all of the news on the single-family market has been good, however. The foreclosure rate is still rising. In addition to this, President Obama's strategies to contain the rise in foreclosures are falling far short of expectations. Finally, the economy is still losing jobs. Employment losses will worsen the foreclosure problems, and stifle home sales, since fewer workers will be moving into new jobs.

On balance, the housing market is turning around. However, with the unemployment rate expected to come down slowly and the market still saturated with unsold homes, market conditions will not return to normal until 2012.