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The underlying cause of the Great Recession was a bursting of the housing bubble back in 2007. Home prices plunged, sparking significant financial losses that shook the globe's major financial institutions as well as the wealth of individual Americans. That's why a pickup in home sales and rising housing prices are critical for an economic recovery.

Fortunately, sales have steadily improved throughout much of this year and it appears that home prices may have finally hit bottom. Yet, some argue that housing prices remain too high in relation to income, suggesting there is still room for prices to decline. A federal tax credit for buyers and lower mortgage rates may also be helping the market -- and neither is certain to continue.

There are also worries about a so-called shadow inventory of homes that have gone into foreclosure that have yet to hit the market. Once they do, that could put further downward pressure on prices. That's why many think the housing market is still in a fragile state. And if the improvement in housing proves to be short-lived, so will the broader economic recovery.

NEXT: Stocks

Last updated November 16 2009: 12:08 PM ET
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