It should be no surprise that housing prices in most major cities fell to new post-bust lows in December, according to the Standard & Poor's/Case-Shiller index. The great housing boom was an artifice of cheap credit, risky banking, ill-advised government policy, greedy Wall Street "engineering" and a mania by average Americans. "Housing prices never go down," the meme went.

Now supply vastly exceeds demand; a "shadow inventory" of bank-owned properties exists to trickle in, holding down prices; many house-owners hang on to an unrealistic price, thus keeping sales from happening; a vast amount of deleveraging continues, whether voluntarily (dampening demand) or through foreclosure (putting more houses on the market), and lenders have tightened credit standards. Indeed, a Wall Street Journal story reports that the actual severity of the housing crash may be much worse than counted and reported.

The old model, including the sprawl construction that was the last major manufacturing sector in most places, is not coming back. The "new normal" that replaces it will be long in arriving, and continue to hold back recovery. For many, the "American dream" may not be the single-family house they "own" (actually, the bank usually owns it).

Author/economist Dambisa Moyo discussed this issue Friday night as part of the Seattle Arts and Lectures series. In her new book, How the West Was Lost, the economist argues that government policies to promote house ownership distorted market signals and incentives, encouraging people to put their capital into property rather than more promising assets. Many western European countries have lower rates of house ownership than America.

Richard Florida has made the critique in a different way, that many people would be better off renting so they could be more mobile and go where the jobs are. And James Howard Kunstler has called suburbia "the greatest misallocation of resources in the history of the world."

The desire of many Americans to own a house won't go away. Their means won't be as great, now that the Federal Reserve can't power a housing bubble that cloaks decades of stagnant wages. The "American dream" was once the right to rise, economic and social mobility amid political freedom — this before the housing industry turned the phrase into a consumer product. Will either survive the new normal? Since the long-form blog essay has been pronounced dead, I must sign off with that question.

Today's Econ Haiku:

So the feds may sue
Kerry and the WaMu brass
Some might say, "Whoo-hoo!"