A HEALTH check of America's housing market is bound to be sobering. The 2011 edition of the “State of the Nation's Housing”, an annual report from Harvard University's Joint Centre for Housing Studies (JCHS), serves up some suitably chilling statistics.

The number of completions of new single-family homes last year hit lows last seen in the second world war. Prices continue to fall, despite the lack of new supply: the latest Case-Shiller national home-price index, released last week, showed a first-quarter fall of 4.2%. The pressure on prices is not about to let up given weak demand and a huge overhang of properties on the way to market: more than 11m homeowners are stuck in negative equity, with another 4m more either behind on their payments or already in the foreclosure process.

The amount of equity in American homes has plummeted from $14.9 trillion in the first quarter of 2006 to just $6.3 trillion at the end of 2010. Low-income households have borne the brunt of the pain: prices at the lower end of the country's metropolitan markets have fallen much more steeply than those for plusher properties.

Yet the JCHS report also offers up some crumbs of comfort. The owner-occupied market remains in the doldrums, but there are signs of life in the rental sector. Rental vacancies dropped last year, and nominal rents began to increase in the second half of 2010.

Rising rents may not sound like something to celebrate but it should help propel a recovery in the construction of multi-family rental apartments, and will also eventually persuade more tenants to think about taking advantage of lower house prices. According to the latest Fannie Mae National Housing Survey, the percentage of renters saying they will continue to rent when they next move house fell to 54% in the first quarter of this year, from a peak of 59% in the summer of 2010. The most bullish housing observers reckon that when prices do eventually turn, they will bounce dramatically.

That seems unlikely, given huge uncertainties over the strength of the economic recovery, employment growth and the availability of credit. A sluggish recovery looks more probable. But if there is a rebound, the JCHS analysis of American demography suggests where things will be most bouncy. At one end of the age spectrum, there will be pent-up demand from younger adults who have deferred setting up on their own because of economic and financial constraints. At the other end, the ageing of the baby-boomer generation will mean an increase in sales of homes by older people looking to downsize into smaller residences. That, and the limitations on mortgage financing, indicates that a revival in housing construction will focus on smaller houses. Fewer McMansions, in other words, and more McMaisonettes.