We have been on a mission lately talking about the real issues within the housing market and why the endless calls for a housing bottom are likely to prove fruitless at the current time.  The issue which is continually overlooked by those hoping for a near term recovery is the psychological impact of a housing bust which deters buyers who fear further declines.  That psychological pressure combined with the excess supply that must eventually be absorbed though diminished demand will continue to pressure prices.  The administrations mistake is trying to artifically inflate home prices rather than letting them fall to their natural bottom where buyers will be found. 

To get caught up on the issues I have listed three must reads:

• Why Home Prices Have Much Further To Fall
• Housing Is Not Affordable
• Housing - The Margin Effect

With today's release of the Case-Shiller home price index it showed that U.S. home prices fell for a third straight month in nearly all cities tracked. After a brief bounce in home prices in 2009, thanks to the "cash for houses" program (aka home buyer tax credit), the trend has since then been decidedly negative.   While there have been brief moments of stabilization due to seasonality - the impact of excess inventory, lower household formations, declining incomes and tight credit continue to pressure home prices lower. 

For November the index dropped in 19 of the 20 cities tracked. The biggest declines were in Atlanta, Chicago and Detroit. Phoenix was the only city to show an increase.   What is even more worrisome is that prices declined in 18 of the 20 cities in November compared to the same month in 2010. Only Washington and Detroit posted year-over-year increases.

While some point to housing starts as a sign of a potential turnaround; the reality is that the bulk of those starts have been in multi-family housing as the reality of the lack of affordability begins to creep through the economy.   Furthermore, because housing starts have fallen to historically low levels it is understandable that industry experts are looking for any uptick as a sign of recovery.  After all, if you are a home builder the current enviroment provides a strangle hold on future growth.  However, the reality is that we could just be stabilizing at a longer term bottom as consumers deleverage, excess inventories are consumed and the foreclosure process is worked through. 

In other words, the is a real potential that it could be several more years before we see any real revival in the housing market.