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The only green shoots in the housing market are growing through the boards of foreclosed homes. For a recession that began with the collapse of the property bubble, and deepened as the losses hollowed out America’s banks from the inside, the state of residential real estate should give pause to all those hoping for a swift economic recovery.

House prices remain in free fall – down a record 19 per cent in the year to January, according to the latest Standard & Poor’s Case-Shiller index released on Tuesday. The pain is not evenly spread. House prices in Detroit, barely touched by the boom, are now back to 1996 levels. Late to the party, Charlotte, in North Carolina, has retreated only to 2006. New York, meanwhile, is gloomy like it’s 2004. The city has only seen prices drop 16 per cent so far, compared with an average 29 per cent loss for the 20 metropolitan areas covered by S&P’s data.

There is little to suggest that the worst is over. Sure, mortgage rates are low – Deutsche Bank calculates that nationwide affordability is at its best since 1980. Half of all home sales in February were to bargain hunting first-time buyers. Yet these positive signs are outweighed by the volume of foreclosed properties on the market. And as unemployment rises, so too does the the number of debtors in distress. In the fourth quarter 8 per cent of all borrowers were at least one month behind on their mortgage, a jump from 7 per cent in the previous quarter.

With an estimated fifth of mortgage holders now owing more than their home is worth, rising job losses mean a continued cycle of foreclosures and ever lower prices. As the government prepares its stress tests to determine banks’ capital needs, the risk remains that further property related losses will overwhelm banks’ ability to earn their way back to health.

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