The challenges in the Miami housing market are more severe than those in most areas of the nation, but a modest economic recovery in the city is under way, according to findings by the Department of Housing and Urban Development and the Treasury.

Miami ranks first in the nation for the share of mortgages at risk of foreclosure — those 90 or more days delinquent or in the foreclosure process. The city’s foreclosure processing time, which is the third longest in the nation, contributes to the high share, extending the foreclosure pipeline.

But home prices in the area have experienced a reversal of fortune since 2000. During the early part of the last decade, local home prices rose at nearly double the pace of the national average. Since then, home prices in Miami fell more steeply than in most parts of the country.

“The fragile signs of stability that the national data show for the broader housing market are even more delicate in the Miami market,” said Erika Poethig, HUD acting assistant secretary.

Miami's June home sales fell 4.8% from the previous month — diverging from the normal boost in summer sales — though domestic and international demand stood tall enough to push sales up 2.5% year-over-year to the highest level for a June in five years, according to a report from DataQuick. Click on the chart below for a 10-year comparison to national home prices.

Although Miami’s housing market remains weak — 45% of home mortgages are underwater and obtaining credit is still a major problem — economic conditions are improving, both HUD and the Treasury said.

The local economy expanded by an average of 60,800 jobs per year, from the third quarter of 2003 through the second quarter of 2007. But as a result of the recent recession, job losses averaged 108,400 jobs per year beginning in the third quarter of 2007 through the first quarter of 2010.

The local economy has made modest gains in the years since, with an average of 30,300 jobs added each year, about half of early 2007 levels.

Despite excess construction, the Miami rental housing market is doing well, with vacancy rates sliding since 2009. According to MPF Research, the overall apartment vacancy rate in Miami shrunk to 4.5% in the first quarter from 5.1% a year earlier. The nation’s vacancy rate traveled the opposite direction to 6.3% from 5.1% in that period.

Nearly 66,900 interventions were started in the Miami area through the Home Affordable Modification Program and other intervention programs from the April 2009 launch of the administration’s assistance programs to May. About 80,600 proprietary mortgage modifications were made through HOPE Now Alliance servicers in that period.

“The administration is working hard to help all homeowners who have been hit hard during the crisis, and our efforts have helped more than 147,000 Miami households to avoid foreclosure," Poethig said. “A modest local economic recovery is under way, but we have much more to do to reach the many households who still face trouble and to help the Miami market recover.”