Special to The Washington Post

President Barack Obama speaks at the James Lee Community Center in Falls Church, Va., Wednesday, Feb. 1, 2012. Obama outlined a proposal to allow homeowners with privately held mortgages to take advantage of record low rates, for an annual savings of about $3,000 for the average borrower. (AP Photo/Susan Walsh) (Susan Walsh/AP)

As part of a strategy to improve the U.S. housing market, President Obama announced Wednesday a pilot program that would allow investors to buy in bulk large numbers of foreclosed properties currently owned by Fannie Mae and Freddie Mac.

The renewed focus on strengthening the housing market is critical if the overall economy is going to improve. Despite some positive signs at the end of 2011, the U.S. housing market continues to be a drag on the nation’s overall economic recovery.

The number of home sold nationally was up modestly in 2011 compared to 2010. However, according to the most recent data from the S&P/Case-Shiller Home Price index, home prices continued to fall at the end of 2011 in almost every major metropolitan area market, and home prices are now back to 2003 levels.

We aren’t seeing home price appreciation because there’s still a significant inventory of foreclosures that remain on the market, as well as the shadow inventory of foreclosures that is currently in the foreclosure pipeline. These distressed properties can take an excruciatingly long time to work through the foreclosure process, and they drag down home prices in the surrounding community.

Another reason home prices haven’t rebounded is that demand for homeownership has slowed. Conversely, rental demand is high.

In some cases, people are choosing to rent instead of own, uncertain about the benefits of homeownership given the market performance since the housing bubble burst. Other potential homebuyers are shut out of the for-sale market because of stricter lending standards.

The rationale behind the foreclosure purchase program is that it would help the for-sale market by taking lower priced homes out of the inventory, while at the same time increasing the supply of rental housing, where there is strong demand.

The foreclosure purchase program—which will be initiated on a pilot basis in the “near term”—would allow pre-qualified investors to purchase foreclosed properties en masse, with the agreement that they would be operated as rental units for some as-yet unspecified time period.

Will this program help the national housing market rebound? Certainly, clearing distressed properties from the for-sale inventory will help stem the price depreciation in some areas hard hit by foreclosures. In addition, increasing the supply of rental properties would help meet the increasing demand for rental housing that has been pushing down rental vacancy rates and pushing up rents in some markets.

The potential impact of the program depends on some things that are still unknown. Will investor demand materialize in the places that would benefit most from investment? Would the demand be there in the near term without government intervention? How long will investors have to keep properties as rentals?

Here in the Washington region, there is some suggestion that investor purchases of distressed properties—often cash purchases—propped up the local market in Prince William County, increasing sales activity and pushing prices up. Home prices in Prince William had dropped to half their peak levels in 2008. Prince William was the hot spot for foreclosures in the region in 2007 and 2008. Sales activity accelerated at the end of 2009 and into 2010, due partially to the federal homebuyer tax credit program, but also because of a substantial number of sales to investors who saw a value in buying homes in Prince William and renting them out as the housing market recovered.

Providing an avenue for well-qualified investors to purchase foreclosures and turn them into rentals has the potential to help markets where foreclosures are a large and growing share of the inventory. However, it may only help at the margins, given that we don’t fully know the scale of the pilot program yet, and only if other economic conditions improve.

The Obama administration’s other proposal—to allow all homeowners with loans backed by Fannie Mae or Freddie Mac to refinance at lower rates—could have a more immediate effect on the economy, directly freeing up money every month that homeowners could spend elsewhere.

The Washington region is not a likely market for the foreclosure purchase program. While rental demand is high in the region, the Washington area’s foreclosure inventory is a relatively small share of the overall inventory. According to local multiple listings service, foreclosures comprise less than 10 percent of the region’s active listings.

The bigger issue in the Washington region is the number of short sales—that is, sales where the proceeds from selling the property fall short of what is owed on the property. In our region, short sales comprise about 30 percent of the current inventory. These homes tend to be lower priced, though they are not as discounted as foreclosures. Furthermore, they would not be part of the proposed foreclosure purchase program.

These homeowners would likely benefit from the Obama administration’s other proposal that allows more widespread refinancing.

We are in the midst of a chicken-and-egg cycle where full economic recovery isn’t possible without recovery of the housing market but they housing market can’t improve until the employment picture improves and consumer confidence rises. A well-structured foreclosure purchase program could help in some local markets hardest hit by the foreclosure crisis, but the impact will be modest unless the rest of the economy also gets better.

Related: What Obama’s housing plan means for you

Related: When will housing bounce back?

Lisa A. Sturtevant is an assistant research professor at George Mason University’s Center for Regional Analysis