A full housing recovery is three to four years off as the nation grapples with a shadow housing inventory of 4.5 million distressed properties, according to Michael Fratantoni, vice president of research and economics for the Mortgage Bankers Association. Fratantoni said a phenomenon is now surfacing in housing that is essentially a “tale of two cities” where home prices are beginning to stabilize in economically viable parts of the country, while other areas are paralyzed by high unemployment and large shadow inventories. “We are going to see different housing market recoveries,” Fratantoni said during the state of the industry address at the MBA’s secondary mortgage market conference in New York. “You will find new homebuilding stronger in markets in Texas and around Washington D.C.,” he said. Meanwhile, the shadow inventory that is driving down prices in parts of the U.S. is stalling an overall national recovery even though most of the distressed inventory is concentrated in Florida, California, Illinois, New York and New Jersey, according to Fratantoni’s research. “This year, you will see some markets show gains in housing prices, while other markets will continue to have elevated levels of inventory,” he said. While homebuying prospects remain weak, Jay Brinkmann, chief economist for the MBA, said the huge trade group is spending a lot of time researching employment data to determine who will be the first buyers back in the housing market. National data shows lower unemployment rates overall for people with college degrees even though this group experienced all-time unemployment highs in November, Brinkmann said. Since then, their employment levels have improved, making this cohort the one to watch, he said. When it comes to “who is going to be coming back into the market, we look to education.” “Employment is most likely to improve among college graduates even though unemployment overall is still high,” Brinkmann said. “There were more jobs added among (the college graduate ) segment, so this will be the first group to buy homes.” The MBA says while home prices are expected to stabilize by year-end, it is forecasting a benign increase in interest rates with economists predicting an increase in the federal funds rate in January. In terms of mortgage rates, the association forecasts a 30-year, fixed-rate mortgage rate of 6.2% by the end of 2012. The Federal Housing Finance Agency said the average rate on a 30-year, fixed mortgage rose to 5.06% in March. Write to Kerri Panchuk.