The number of underwater mortgages is plummeting as the housing market continues to recover. This will have huge ramifications for the finances of millions of people and families.

Maggie Medved was stuck with her Phoenix house for two years after the market crash wiped out the equity in the property. Last year, as prices in the area rose by the most in the U.S., she and her partner were finally able to sell the 3-bedroom 1950’s style home and move to a larger place.

“We were counting the days for when we could move,” said Medved, 40, who trains employees for weight loss company Jenny Craig Inc. “We definitely knew it was a waiting game because it would’ve been financial suicide if we had sold earlier.”

Medved was among the 12 million borrowers in the U.S. who at the peak of the real-estate downturn owed more on their mortgages than their houses were worth, blocking them from moving or saving money by taking advantage of the lowest borrowing costs on record to refinance. As prices recovered, the number of underwater borrowers fell by almost 4 million last year to 7 million, according to JPMorgan Chase & Co. (JPM), and could drop to 4 million within 2 years.

The housing market is rebounding faster than anyone thought possible, according to Blackstone Group LP (BX)’s global head of real estate Jonathan Gray, as the Federal Reserve buys mortgage bonds to keep rates near record lows and investors sop up a diminishing supply of properties for sale. Housing construction could boost U.S. gross domestic product by 0.4 percentage point and home price appreciation may add another 0.2 percentage point, Bank of America Corp. (BAC)’s senior economist Michelle Meyer forecasts.

The housing recovery is one of the main reasons why we can now start getting optimistic on the US economy. So many people were stuck in impossible situations, and now that burden is being lifted. The Fed has been a huge driver of this improvement, along with the billions in private investment looking for deals on under-priced homes.

The foreclosure crisis has been a huge drag on the economy since the economic collapse of 2008. Warren Buffett has explained that we won’t have an economic recovery until we have a housing recovery.

One of the controversies, however, involves bad practices by the banks, and whether consumers should get a break in the face of this misconduct.

Mitt Romney apparently doesn’t think so, as he is arguing in Las Vegas that foreclosures should speed up.

“Don’t try to stop the foreclosure process. Let it run its course and hit the bottom,” Romney said when asked by the Las Vegas Review-Journal what he would do to jump-start the floundering housing market. “Allow investors to buy homes, put renters in them, fix the homes up and let it turn around and come back up.”

The administration, Romney said, “has slow walked the foreclosure process … that has long existed and as a result we still have a foreclosure overhang.” Nevada Attorney General Catherine Cortez Masto sued Bank of America in August, accusing it of foreclosing on homes without proper authority. Nevada is beset by economic turmoil and foreclosures. Last year, one in nine Las Vegas homes received a foreclosure notice.

On pure economic terms he has a point, but he seems to ignore how millions of American were screwed over by the banks. Yes, many home buyers made mistakes, yet it’s clear that the banks were jamming through mortgages just to rack up fees.

It will be interesting to see how this plays out.

For many parts of the country, this is becoming true:

As the national real estate slump deepens, home prices in many cities have crossed a worrisome milestone.

It’s cheaper to buy a home than to rent onein 74 percent of the country’s largest 50 cities, according to the real estate site Trulia — findings that confirm the national epidemic of depressed housing prices remains in full swing.

Trulia’s research, which compared the median list price and median rent for two-bedroom apartments, condos and townhomes in America’s 50 largest cities, found that renting is more expensive than buying in dozens of markets, particularly in Miami and Las Vegas, as well as Mesa, New Mexico, and Arlington, Texas.

Of course, you have to have the credit to buy a home, thus this doesn’t apply to everyone. That said, if you have good credit, with mortgage rates so low, now is a good time to start looking if you want to purchase a home.

Robert Samuelson is usually bringing bad news. He’s a respected economist, but nobody will accuse him of being an optimist. In fact, he’s very bearish on our fiscal future and he believes that life will be more difficult for the next generation of Americans given our massive debt and the inevitable need for higher taxes or cuts in benefits like Medicare and Social Security.

But he sees a silver lining with the collapse of housing prices. It’s terrible for anyone who bought a home in the past decade, but it’s good news for young people who home to buy a home some day.

But housing’s troubles may have a silver lining. If you’re a homeowner, the steep fall in prices is calamitous. But if you’re a future buyer, it’s a godsend. What we’re seeing is a massive wealth transfer from today’s older homeowners to tomorrow’s younger homeowners. From year-end 2006 to 2010, housing values fell $6.3 trillion, reports the Federal Reserve. Assuming there’s no sharp rebound in prices — a good bet — that’s $6.3 trillion the young won’t pay.

Up to a point, the lower home prices merely deflate the artificial “bubble.” But there’s evidence that the declines transcend that. The National Association of Realtors routinely publishes a housing “affordability” index, which judges the ability of median families to buy the median-price home at prevailing interest rates. By this measure, existing homes are the most affordable since the index started in 1970.

Young buyers “will be able to enter the housing market at bargain prices,” argues NAR economist Lawrence Yun. When home prices again rise, increases will parallel income gains, meaning that the relative burden of housing costs will remain roughly stable, Yun says. He expects only modest increases in interest rates. (A rise of one percentage point — say, from 5 percent to 6 percent — on a $150,000 mortgage boosts the monthly payment about $95.)

The important thing for young people, however, is learning to avoid credit card debt. If they don’t learn this lesson, lower housing prices won’t matter much as they wont be able to afford a mortgage payment if they’re loaded up with credit card payments.