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Untroduction and Executive Summarvj ,,,j The housing markets in the United States are at an inflection point. As the economy recovers from its current turmoiL markets will stabilize, but the old "normal" will not return. Once-nascent trends will emerge as major drivers, creating new markets 'in new places. Those who fall to understand these new trends will miss opportunities or find themselves building what is no longer in demand. The first Fart of this report reviews the current state of the market. Home prices are stabilizing and even beginning to rise in many Farts of the country, but overwhelming challenges remain. National housing prices will fall another 1O percent in 2010, until they stabilize in the second half of the year or in early 2011. This projection assumes that job losses come toan end and unemployment begins to decline during 2O1O. The biggest challenge to the housing markets today, besides unemployment, is the growing number of homes with mortgages that are 'underwater"—that is, with princi- pal balances higher than the current values of the homes that secure them. By the end of 2010, some 40 percent of all homes with mortgages are predicted to be underwater. The population of the United States is projected to grow rapidly during the coming decade. This will produce strong demand for housing once the economy recovers and unemployment drops. However, it is probable that the homeownership rate, currently 67 percent, will fall to levels not seen in two decades. This will produce a strong market for rental housing in the years ahead. Workforce housing will remain a challenge. Many in the moderate-income workforce will find their incomes constrained and housing in the communities where they work out of their reach despite the current market declines. They will look to the outer sub- urbs for housing, which is where the [east-expensive homes will be found, but the cost Klq!