Mortgage rates are about as low as they can go. What this market needs is jobs. By Jerome Idaszak, Contributing Editor August 25, 2010 As expected, both housing construction and sales are plummeting as a result of the end of federal tax subsidies that helped boost buying earlier this year. Although the descent looks dire, it will take until the fall to assess the true condition of housing after the tax-induced boom and bust. We continue to think that starts and sales will level off in coming months, gradually improving in 2011 as the economy improves, and that the decline in prices is about over. Increased net job growth is key. Fewer job losses would mean fewer homes heading into foreclosure. The total is now expected to hit about 2 million this year and continue at that level next year. And more hiring would stimulate more home buying, especially with rates on 30-year fixed mortgages at a 40-year low of 4.4%. Those rates won’t rise until the economy picks up -- not in the cards until sometime this fall. Still, recent squishiness in the economy raises the odds that prices will slip further. With home values about 25% lower than their peak in 2006, roughly one in five mortgage holders owe more on their loan than their house is worth. If the economy doesn’t firm up, more foreclosures -- including some voluntarily by homeowners who can afford to pay but choose not to because they are upside down on their mortgages -- will put more downward pressure on prices. In any case, it will be 2012 before housing returns to more normal conditions, with housing starts of around 900,000 and annual sales of more than 6 million homes. For at least a few more months, uncertainty about the economic recovery will weigh on the market. Sales of existing homes in July fell 27% from June. Sales of new homes in July fell 12.4%. As a result of scant buying, housing starts of single-family units fell 4.2% in July.