There are still too many houses

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NEW YORK (Fortune) -- The lights are on in the housing market. But at more and more places, nobody's home.

House prices have risen in recent months after a long plunge, according to the National Association of Realtors and the S&P Case-Shiller national index. Fewer Americans owe more than their property is worth, according to a report this week from Zillow.com.

But a full-fledged housing recovery will remain elusive until the market can absorb all the houses and apartments that were built during the housing boom. And on that front, progress has been slow.

About one in seven housing units was vacant in the third quarter, according to the Census Department. This year has registered the highest reading since the government began collecting such data in 1965.

Part of the glut comes from a rash of foreclosures as strapped borrowers fall behind on their mortgages.

But rental apartments are emptying out at a record clip as well, as a spike in the jobless rate and a decade of subpar wage growth have sent many Americans back home to live with Mom and Dad.

And some owners, such as Treasury Secretary Tim Geithner, have decided to rent their houses out after they couldn't sell them.

"There's just too many houses out there for the population we have," said Brian Peterson, an economist at Indiana University who focuses on housing. "The market's going to take a couple years to clear."

The homeowner vacancy rate dropped to 2.6% in the third quarter from 2.8% a year ago, when homeowner vacancies hit their all-time high. But a jump in the rental vacancy rate, to 11.1% from 9.9% a year earlier, more than offset that decline.

Because twice as many people own their homes as rent, the total vacancy rate -- 14.5% in the third quarter -- exceeds the sum of the homeowner and rental vacancy rates.

The rise in vacancies comes after a decade in which homebuilders, motivated by easy financing and rising prices, built many more homes than the U.S. needed.

About 1.2 million households are formed each year, on average, according to government estimates. But housing starts averaged 1.7 million a year between 1996 and 2006, when the boom topped out.

"There was some overbuilding during that period," said Walter Molony, a public affairs specialist at the National Association of Realtors.

Since then, housing starts have dropped sharply, allowing the market to soak up some of the excess. And prices have dropped precipitously in the most overbuilt markets in the South and West, luring some buyers off the sidelines.

Peterson also notes that the vacancy numbers have expanded over the years to include more types of vacant homes, such as seasonally occupied beach houses.

Meanwhile, tax credits, mortgage modifications and government mortgage market support have helped slow the decline of house prices.

Federal mortgage purchases have brought down 30-year mortgage rates by a third of a point, according to Wall Street estimates. More than 350,000 Americans have used the $8,000 homebuyer tax credit to buy their first house, according to industry data.

But because most of those buyers were presumably renters beforehand, their purchases filled one vacancy while creating another.

The biggest factor working for a recovery now, Peterson said, is that buyers who were once priced out of many housing markets are being lured in by lower prices.

But those people may not take the plunge until their job prospects firm up, he added. That may take a while at a time when unemployment is at a 26-year high and the economy has shed jobs for 22 straight months.

"We need those people to start buying houses and starting families," he said.