There seems to be a growing sense that home prices are not going to recover, on a national scale, before the economy shows signs that the recession is ending. To confuse this notion with some facts, the chart below shows the year-over-year percent change in the median price for existing homes over the course of the business cycle (shaded areas are recessions). Recession definitely impacts home prices, some more than others for many different reasons – affordability, real interest rate levels, unemployment rate, etc. But in each cycle, home prices recover before the economy does -- at least as far as NBER dating is concerned. Because the perception of recovery lags reality, this means that home prices begin to recover long before consumers believe the recession has ended and certainly before the unemployment rate starts to turn down. All of which is to say that in the coming months we will see home prices begin to recover even though the recession is not officially over. My forecast is for home prices to begin move higher in the third quarter (www.econmkts.com) and to finish 2009 with prices about 11% below year-end 2008 levels.