When Home Depot reported its earnings for the latest quarter last week, CEO Frank Blake touted the results as good news for the retailer and for the country’s beleaguered housing market.

According to Reuters, Blake cited earnings that beat Wall Street profit estimates, as well as improving sales at its stores in Florida and California — two of the states hit hardest by the bursting of the housing bubble.

But Jack M. Guttentag, an emeritus professor of finance at Wharton who runs a website called The Mortgage Professor, says the U.S. housing market is still facing some significant challenges. “Home Depot is a very limited sample,” he notes. “It’s a single firm, and its performance could be due to a great variety of things that have to do with its ability to compete in its market relative to competitors. I wouldn’t put a lot of credence in their improvement,” as it relates to the overall market.

Meanwhile, additional signs of a potential turnaround are cropping up. This week, luxury home builder Toll Brothers posted quarterly earnings that surpassed analysts’ expectations, and the Commerce Department reported that in June, groundbreaking on new homes was up 6.9% — the highest in three and a half years. However, Guttentag notes that in the case of the Commerce Department report, the increase is based on a number that was low to begin with. “If you project into the medium-term future, which is the next couple of years, you have to look at the factors that are going to have the greatest bearing on the market — and there, the outlook is not so great.”

Among the issues of greatest concern is the lingering backlog of foreclosures. “Those homes that are being foreclosed on are going to be coming into the market over the next two-to-three years. That’s a drag on the market, and it’s going to continue to be a drag,” Guttentag says. “The housing market is one market, so if somebody goes out to buy a house, they may buy a new house or they may buy an existing house. A foreclosed home is in competition with new homes and new construction.”

While some homebuyers won’t consider previously foreclosed homes due to concerns about their condition, Guttentag notes that sales of existing homes are typically greater than those of new homes, and also impact the pace of new construction. “Existing homes don’t generate the economic activity that new homes do, because you don’t have the construction process,” he says. “But purchases of existing homes are an extremely important determinant of the volume of construction of new homes because those are competitive elements.”

Another issue is the significant tightening of lending terms in reaction to the relatively lax policies many believe contributed to the housing bubble. “The financial crisis caused a complete retrenching of mortgage lending terms,” Guttentag notes, adding that a host of new requirements have made it much more difficult for potential refinancers and homebuyers to qualify for loans. Most of the mortgage market is now under the purview of the federal government via Fannie Mae, Freddie Mac and the Federal Housing Administration, “but the government has not really been sensitive to this problem — nothing has been done to shake it up,” Guttentag says. “And some of the changes in the rules have been crazy. They’ve turned the excessive liberality of the pre-crisis years into an environment of excessive stringency.”

Last Friday, the U.S. Treasury announced that it would require Fannie and Freddie to shrink their investment portfolios more rapidly and turn over any profits to taxpayers — the latest step in what is likely to be the eventual dissolution of the two companies. “They may be under pressure from these new rules to tighten even further in order to slow down the burden of mortgages,” Guttentag notes.