Home prices rose 10.8% year-over-year in April, according to the Case-Shiller 20-city home price index. Meanwhile, sales of new homes jumped 18.6% in April to a seasonally-adjusted annual rate of 506,000, a new post-recession high, according to the Commerce Department.

Real estate is an essential part of the American economy, as it contributes close to one-fifth of GDP by some estimates and provides Americans with essential shelter and decent-paying, blue-collar jobs that have been scarce ever since the financial crisis. But after months of reports telling of rising home prices and new construction projects, how exactly is the industry faring and how is the median American benefitting from it? Here’s the good, the bad, and the ugly of the housing market:

The Good

1. Home prices are going up, and have once again reached 2005 levels.

2. Construction spending has reached its highest level since before the recession ended, while construction employment is up 10% since its low in 2011.

Again, this sort of economic activity is essential to getting the entire economy moving again, as the construction industry is a great source of higher-paying, blue-collar jobs.

3. Housing inventory appears to have bottomed last year, and is now on the rise.

The Bad

1. Home price increases are due largely to low inventory rather than high demand. Though inventory has been on the rise this year, the number of homes for sale is far below the pre-recession peak, and price recovery has outpaced recovery of inventory. That calls into question the true demand for homes in an economy where wage and employment growth is still sluggish.

2. Inventory is particularly limited at the bottom end of the market.

According to the online real estate database Zillow, the increases we’re seeing in housing inventory are pretty much all occurring at the high end of the market. “Tight inventory is especially pronounced in the lower end of the market, which we define as the bottom third of the housing stock…. This tightness of supply will continue to impact first-time home buyers and others trying to buy a lower-end home,” says Svenja Gudell, director of economic research at Zillow.

The blue in the chart above represents the bottom third of the market, which is also the share with the tightest inventory.

The Ugly 

1. What’s really holding back the bottom of the housing market, and therefore the market overall, is the ongoing foreclosure crisis in America. According to CoreLogic, there are 6.3 million homeowners in America who owe more on their homes than they are worth, or 12.7% of all properties with a mortgage.

Most of these properties are those at the bottom of the home value scale—the kind of real estate that first-time homebuyers can afford to purchase. With these properties underwater, the current homeowners are stuck in their homes due to tough restrictions on short sales.

Though the number of underwater homes continues to fall, progress has been slow. Despite this fact, Fannie Mae and Freddie Mac—which are under conservatorship by the federal government—continue to refuse to consider adopting programs that would reduce the amount of principal owed by underwater borrowers, which would save both the borrower and the taxpayer money.

The following chart from Core Logic shows that the percentage of homeowners who owe more than 125% of the fair-market value of their home represents one of the largest segments of borrowers in the U.S.