But wait! If you are thinking this is terrible, stop and reflect. You could be falling into the same error that people looking at Ford’s old price chart are making.

We have a tendency to think that a past high was properly achieved. If all goes well, a stock… indeed housing stock… will get back to that hallowed spot where it “belongs.”

The government named its housing office the Office of Federal Housing Enterprise Oversight (OFHEO—even its initials aren’t clever). Despite the clunky name, though, the website is pretty cool. You might want to look at trends in your home state. While you are at it, check out California, the poster child for falling home prices.

Yes, California’s average home price fell 15.8% in the second quarter of 2008. If that represents the sky falling, those clouds are still in the stratosphere. If you look back, you will see that in 2005 California home prices rose (from the first quarter to the fourth) 26.2%, 25.6%, 20.2% and 21.1%. That comes to a 131% increase in the price of a California home in one year! The trend continued into 2006 with another 18.3%, 13.8%, 9.03% and 3.94%. That’s a 252% gain in two years.

Clipping a mere 16% off that trend is like trimming the eyelashes on a poodle. Check the website and see how your state is doing: http://www.ofheo.gov/hpi.aspx

Source: Look Deeper Into Housing Numbers And You Will See A Different Picture

Home prices fell 3.1% in the first quarter compared with last year, according to The Office of Federal Housing Enterprise Oversight. This from AP:

Declines in the government index, which focuses on less expensive properties and includes fewer houses bought with risky home loans that have gone sour over the past year, show the depth of the housing market’s troubles.

Prices fell in 43 states, with California and Nevada showing the biggest declines. Home prices dropped by more than 8 percent in those states. The government index also fell 1.7 percent from the fourth quarter of 2007 to the first quarter of 2008, the largest quarterly price drop on record.

Adam York, an economic analyst with Wachovia Corp., said Thursday’s data was unsurprising. “It was pretty widely expected that we would see declines this quarter and for some time to come,” he said.

“Look at a nationwide map of foreclosures, and you just might be looking at a hollowed-out future of exurban America,” says Dave Gonigam in The Daily Reckoning.

“The fact is that ever-rising energy costs will alter American driving and dietary habits with no government intervention at all. $7 gasoline (or $12, now that Robert Hirsch of Hirsch Report fame has repeated Charlie Maxwell’s $12 forecast on CNBC) will make the 40-mile one-way commute unsustainable.

“The map tells one part of the story that’s undoubtedly true: there’s a whole lot of fairly new housing stock out there, 40 or 50 miles from major cities, that’s being steadily abandoned… and may never be occupied again.”

“Three things about the decade-long inflation in real estate prices now imploding on both sides of the Atlantic continue to amaze us here,” says Adrian Ash in The Daily Reckoning UK.

“First, the sheer volume of foreclosures sweeping the former hot spots of America. Second, the size of house price ‘discounts’ about to hit the United Kingdom. And third, how-in-the-hell anyone ever thought subprime mortgages sounded like a good idea.”

That drop-off from the fourth quarter to the first quarter in the OFHEO’s “purchase-only index” exceeded the 1.4% decline between the third and fourth quarters of last year, and was the biggest decrease in the 17-year history of the index. On a year-over-year basis, home prices have fallen 3.1% since the first quarter of 2007.

All the figures were reported on a seasonally adjusted basis.

“For homeowners and financial market observers, these declines spell further erosion in home equity levels and potentially more trouble for mortgage markets,” James Lockhart, OFHEO’s director, said in a statement.

However, Lockhart also noted that the decline in prices could be good news for some.

“To prospective home buyers who have been shut out of homeownership because of affordability constraints, these declines may be welcome news,” he added.

The size of the first-quarter decline is yet another signal that the housing recession is still weighing heavily on the home market.

The steepest declines were in areas that experienced overbuilding, such as California and Nevada, where home prices dropped as much as 8% in the quarter, the OFHEO reported.

The drop in housing prices only serves to exacerbate the ongoing subprime crisis.

“It’s a dismal picture, there’s no way around it,” Paul Kasriel, chief economist at Northern Trust Corp. (NTRS) in Chicago, told Bloomberg News. “A complicating factor is the fact that so many homeowners owe more on their mortgages than their houses are worth. This is a financial crisis. You can’t put lipstick on this pig.”

As home prices drop, overextended owners are unable to sell for a price high enough to cover the outstanding balance on their mortgages. The result has been a large upswing in the number of home foreclosures.

Foreclosure filings have hit an all-time high, with a 65% year-over-year increase in April and a 4% increase from March, RealtyTrac reported earlier this month.

Almost two-thirds of U.S. banks have raised standards for mortgages, even to their most creditworthy borrowers, Bloomberg reported. For those with limited or bad credit history, so-called subprime borrowers, three-fourths of banks have raised lending requirements, according to a U.S. Federal Reserve survey of senior loan officers published May 5.

At the same time that consumers are finding it hard to obtain needed financing, the high level of housing inventory, currently at an 11-month supply, is making it very difficult for distressed homeowners to sell. The glut of homes currently on the market is putting downward pressure on home prices.

“The large overhang of real estate inventory awaiting sale continues to force price declines in many areas, but particularly in places that had seen very sharp appreciation in previous periods,” said Patrick Lawler, OFHEO chief economist.

Source: U.S. Housing Prices Suffer Worst Quarterly Decline on Record