Meltdown 101: Where do home prices really stand?

Is the historic U.S. housing market crash close to being over, or is the end still far, far away?

While sales finally seem to be stabilizing, prices are still are likely to keep sinking well into next year and maybe longer. Prices have been cut in half in Las Vegas and Phoenix, according to one popular home price measurement.

But statistics like these mask the many complexities involved in trying to measure U.S. home prices.

Every home price gauge captures a somewhat different slice of the housing market, even when they all depict the same general trend.

Also, all real estate is local - some neighborhoods have largely escaped the housing bust, and price declines can vary sharply within a single metro area. In many parts of the country, faraway suburbs, where many buyers moved into new subdivisions and stretched to qualify for mortgages, have been hit harder than established, wealthy enclaves.

Here are some answers to common questions about how home prices are measured.

Q: How far have national home prices fallen?

A: It depends on what measurement you use. But according to the Standard & Poor's/Case-Shiller National Home Price index, the measure that's most widely watched on Wall Street, home prices have fallen 32 percent after peaking in the second quarter of 2006.

Q: How much will they drop in the future?

A: Analysts expect national prices to drop another 10 to 15 percent over the next year, depending on how long the recession lasts and its severity.

Markets that were last to be hit by the housing bust will be the slowest to emerge. Deutsche Bank, for example, projects prices in New York are still likely to fall another 40 percent. Los Angeles, meanwhile, has only another 11 percent left to go, according to the Wall Street firm's forecast.

Q: Do real estate agents have anything to say about home prices?

A: Yes. The National Association of Realtors' median home sales price - collected from real estate listing services around the country - is another prominent measurement. It peaked at $230,300 in July 2006 and has since fallen about 25 percent to a median of $173,000 in May.

Q: That's pretty easy to understand. Why not just use that?

A: Economists don't like using median prices because they can be skewed by a change in the mix of properties that sell in a given month.

A median is the point at which half of the prices are above, and half below. If many low-end properties sell in one month, that will push the median lower; if many high-end properties sell, the median goes higher. Economists want to make sure their data isn't distorted by those natural fluctuations.

Q: How do you fix that problem?

A: Economists have created indexes like the Case-Shiller reading that examine price changes for the same properties over time instead of calculating a median price for all houses sold during a particular month or quarter. Doing so prevents the data from being skewed by changes in the mix of houses sold.

Q: Does the government collect similar information?

A: Yes. One index, created by the Federal Housing Finance Agency, is calculated solely using loans that are bought or backed by government-sponsored mortgage companies Fannie Mae and Freddie Mac.

Importantly, that excludes many high-end properties, as well as many properties bought with some of the riskier varieties of home loans that went sour this year. Also, if an investor pays entirely in cash, those transactions are excluded.

As a result, this index paints a much more tempered picture of the housing bust. It shows home prices dropping by just over 11 percent from a peak in April 2007.

"It's missing much of the action," said Dean Baker, an economist and co-director of the liberal Center for Economic Policy Research in Washington.

By contrast, the Case-Shiller index, developed by Yale University economist Robert Shiller and Wellesley College economist Karl Case, peaked in mid-2006 and has shown far more rapid and dramatic declines.

Q: Which one is better?

A: Both are valid measurements - they just measure different things, experts say. Nevertheless, investors will be far more interested when they finally see some consistent positive trends in the Case-Shiller index - most likely a substantial slowdown in the rate of decline. That's likely to mean that the housing bust is finally wearing down.

Q: When will that finally happen?

A: It could be at least a year, economists say.

"House price trends, they're more like Mack trucks than Porsches," said Mark Fleming, chief economist with First American CoreLogic, which has its own home price index. "The truck is still in reverse."

Q: What impact do foreclosures have on prices?

A: They drag them way down. In fact, many real estate agents say that when you factor out foreclosures and other distressed properties, their markets look a whole lot healthier.

In Minneapolis, for example, median prices were down about 22 percent to a median of around $123,000 in the first three months of this year for distressed properties, but declined less than 4 percent to a median of $212,000 for traditional, non-distressed sales.

"We describe our market as a tale of two markets," said Mark Allen, CEO of the Minneapolis Area Association of Realtors.