The number of distressed residential properties spilling onto the U.S. market is expected to depress the national median price for a single-family home another 5 to 10 percent before bottoming by year’s end or early 2011. More than 3 million homes are expected to go into foreclosure this year, with one in four homeowners owing more on their mortgage than their house is worth.

According to Urban Land’s roundtable of housing experts, markets will be dominated by local public homebuilders, while smaller development companies will focus on small-scale infill projects where sites are reasonably priced. With construction costs leveling off, home sizes will shrink. Expect smaller singlefamily lots and townhouses. Federal stimulus money and some state and local financial assistance are being made available for affordable housing projects. Green design, much discussed lately, is beginning to give projects a marketing edge, participants said.

Several factors are escalating the popularity of urbanization, says ULI Housing Fellow John McIlwain: fewer baby boomers moving to the suburbs, the growth of two-person households, generation Y choosing or being forced to rent rather than own, and public policies that encourage compact development.

Studies show the U.S. population is continuing to move closer to principal work locations and is willing to give up some living space in exchange for shorter commutes and lower energy bills. Compact development reports Moving Cooler, Growing Cooler, and Land Use and Driving by the Urban Land Institute explain how compact development helps protect families from increasing household costs, especially those tied directly to the price of fuel and energy, such as transportation and utilities.

Infill sites present alluring development opportunities, according to the ULI/PriceWaterhouse Coopers report Emerging Trends in Real Estate 2010. When homebuilding does finally resume, the report predicts, development and housing patterns will be more urban focused, incorporating smaller lots, townhouses, and town center mixed-use projects, and more affordable housing options. With city officials eager for job creation and new revenue, the current real estate market offering depressed land prices, an undersupply of close-in housing, and pent-up buyer demand, urban infill development is filling a timely niche.

According to a recent U.S. Environmental Protection Agency report, the trend toward residential urban and suburban infill is already well underway. Targeting pockets of opportunity in built-out communities close to mass transit, job centers, or retailers is a new generation of residential homebuilder that is building a mix of townhouses and small-lot, detached, single-family homes for different income levels and buyer needs.

Modular housing, attractive for its lower development and labor costs and speed of construction, is already being built by developers worldwide. But a modular net-zero-energy townhouse offers a new take on this model. A 1,540-square-foot (143-sq-m) demonstration project being built for $258,000 in Oakland, California, will be monitored for energy performance in the field by the U.S. Department of Energy.

Since 1989, manufactured housing has accounted for 21 percent of all new family homes sold in the United States. According to ULI’s Manufactured Housing Communities Council, which addresses strategic planning needs and functions as the manufactured housing industry’s de facto think tank, many younger homebuyers are turning to low-cost manufactured housing. With no fewer than six types of housing, these land-lease communities are one of the few products in the current recession enjoying a sellers’ market.

Ultimately, the lasting stability of the U.S. housing market will be determined by the structure and revitalization of the private home mortgage finance system; unfortunately, prospects for its recovery are not promising, says McIlwain. Committed to keeping mortgage rates low to maintain the housing recovery, government-sponsored entities are likely to displace the private market for some time. The financial regulatory reforms currently before Congress will restructure the mortgage market in ways still largely unpredictable.