To bring this discussion back to the effect on the housing market, I think the ability of newly formed households, which are more likely to have lower incomes or weaker credit scores, to access the mortgage market will make a big difference in the shape of the recovery.
Economic improvement will cause household formation to increase, but if credit is hard to get, these will be rental rather than owner-occupied households. And without first-time homebuyers, the move-up market will be sluggish, new and existing home sales will be more subdued, and purchase mortgage volumes will return only slowly.