The housing recession – now entering its third year – has recently shown some signs of abating. But with economic growth still feeble in many parts of the country, analysts say any meaningful housing rebound is still years away.

Though the U.S. economy is slowly recovering from its worst downturn since World War II, growth is weakening in some regions, according to the latest data from msnbc.com’s Adversity Index.

In November, the latest data available, 28 metro areas – and four states – were downgraded from the “recovery” to the “at risk” category. Montana, Ohio, Tennessee and Delaware all were downgraded.

“If an area is at risk, we still consider it to be recovery,” said to Andrew Gledhill an economist at Moody’s Analytics, which tracks the economic data that makes up the index. “But we’re worried that conditions might shift toward recession in the months ahead.”

Even as the job market shows gradual signs of improvement, the housing market continues to struggle. Government data this week showed that housing starts fell last month , due partly to bad weather in much of the country. Sales of existing homes perked up in December, but analysts say the housing market faces a long rehabilitation.

“It just means that after two years at the bottom were finally starting to climb out,” said Patrick Newport, economist at IHS Global Insight who follows the housing market. “But it’s going to take three to four years before the market is back to normal.”

Even the nation’s largest bank by assets is under pressure from the housing slump. On Friday, Bank of America reported a loss for the second straight quarter amid a glut of problem home loans.

The market’s biggest problem is an excess of unsold homes created by the millions of homes lost to foreclosure in the housing bust. Though the pace of foreclosures may be topping out, the supply of unsold houses still is overwhelming tepid demand.

In December, the inventory of unsold homes represented about 8 months worth of sales. That’s roughly double levels seen in the early part of the last decade.

Nearly 3 million homes were foreclosed in 2010; the Federal Reserve recently estimates that another 2.25 million will be lost to foreclosures hits year and two million more in 2012.  Falling prices continue to push homeowners “underwater” – meaning they owe more on their mortgage than their home is worth.

“There are just so many homes that are deeply underwater,” said Newport. “Those homes are going to go into foreclosure at some point.”

With so many empty homes on the market, the construction industry remains mired in a deep recession. Builders broke ground on only 588,000 homes last year, down from more than 2 million in 2005.

“Once we get through some of this mortgage backlog, there is no reason for builders to build much more than around 600,000 homes this year, because there are too many new homes out there vacant,”said Stuart Hoffman, chief economist at PNC Financial.

Falling prices may be helping to boost sales. The median price of existing homes sold in December fell 1 percent from year-ago levels, to $168,800, according to the National Association of Realtors. Prices are falling fastest in regions that saw the biggest run-up during the housing boom. The median price for homes in the West is down 5.6 percent, while the price for homes in the Midwest is up 3.3 percent.

With so many vacant homes on the market, prices are expected to continue falling through much of 2011, according to Gledhill at Moody’s.  So-called distressed sales, including bank-owned foreclosed properties, accounted for 36 percent of homes sold in December sales — up from 32 percent a year ago.

“A larger share of home sales is being taken up by these heavily discounted properties,” he said. “So even if conditions in the housing market have bottomed out, you’re going to see price declines.”

The housing market is benefiting from historically cheap mortgage rates, partly driven largely by Federal Reserve efforts including a historic bond-buying spree.

The housing outlook is made murkier by uncertainty over the strength of recovery in the job market, the major driver of demand for new homes. Many economists expect private sector hiring to pick up as the year progresses.

But those job gains are being offset by pressure on public sector payrolls as state and local governments deal with the need for deep budget cuts.

“The threat to the recovery is shifting from a drag from the private sector to a drag from state and local governments. That’s something that we’ll be watching in 2011,” said Gledhill.

That drag on public sector payrolls has also spread to various parts of the country as the government’s economic stimulus spending begins to fade.

There are four states that remain in recession, according to our Adversity Index: Nevada, Illinois, Michigan and Mississippi. There are 11 “at risk” states, including North and South Carolina, Alabama, Arizona, Idaho, New Jersey and Utah.

Article courtesy of MSNBC