Escaping house arrest - Five developments that will signal recovery in full swing - MarketWatch

SAN FRANCISCO (MarketWatch) -- As a nation founded by pioneers and immigrants, Americans are anything but a sedentary people. We'll pick up and move thousands of miles for job opportunities, for warmer climes come retirement or for the fresh start and scenery change that our 50 diverse states offer us.

Enter the housing market's collapse -- and the sudden imprisonment of millions of us in our own homes, shackled by mortgage balances exceeding our property values. While the market outlook is brightening and it seems we're just around the corner from the light of day, as Bruce Springsteen wrote, there's still darkness on the edge of town.

When it comes to real-estate values -- as with any value judgment -- perception is reality. What follows are five housing-market developments that we'll need to see before we can say a recovery is in full swing:

1. The cost of a lot

While the housing market's retreat has been all too painfully clear, what's virtually uncovered in the media is the collapse of America's land underfoot.

When a market devalues new well-outfitted homes by 50% and more, rest assured it isn't paying any mind to the value of undeveloped land or even improved lots. That market blindness -- and lenders' reluctance as market makers to extend land loans as a result -- has led to a slashing of prices that will only come to light 18 months from now at the rate it's been ignored.

In Florida, Arizona and Nevada, desirable lots can be bought for under $10,000 in cities and towns on major "Best Places to Retire" lists. The same holds for small, coastal towns along both seaboards, where $30,000 will buy land within 100 yards of a beach that would have set you back $150,000 three years ago if you weren't wise to the guise.

At this ignored rate of decline, we may soon see the federal government offering 3% lot loans to first-time buyer/builders to free up a residential-land market free enterprise completely pulverized. If only private capital hadn't petered out and forgotten that to all Americans, dirt-cheap land is a Louisiana Purchase childhood dream to seize upon.

2. The towel-toss rate

In the past year, the soaring U.S. foreclosure rate was driven primarily by a single group -- homeowners who paid inflated prices near the market top and bailed when they couldn't meet resetting ARM payments or realized their mortgages far exceeded their homes' value. In skipping out, they stuck the rest of us and the economy with the bailout bill -- as did the lenders who enabled them.

Job losses are accounting for a large percentage of more recent foreclosures. And now heartland housing markets that saw only modest gains in the last 15 years are enduring sharp price drops -- just as many of the hardest-hit markets are turning around.

The big question in the coming year: How many homeowners moderately underwater -- less than $100,000 -- and under financial duress will or won't walk away on "their obligations?"

A desire to escape a Dickensian debtors' prison that is their own home will fuel a historically high, extended rate of foreclosures for several years hence. The key variable in the equation: The pace at which median housing prices rise in the year ahead and provide hope that it's worth hanging on.

3. Ten boomers booming

Baby boomers planning to downsize from empty nests or move to retirement locales have put the move-up market into cardiac arrest by sitting tight awaiting a recovery. Shell-shocked by a massive loss in home equity they hoped to pocket on houses they owned for decades, they're ignoring remarkable trade-off bargains in the decimated retirement states like Florida, Arizona, Nevada and even California.