U.S. Housing Prices: When's the Bottom?

Home prices continue to tumble, and some economists expect the pain may not end until 2010.

The latest S&P Case-Shiller data, released Tuesday, showed home prices in the 10 largest U.S. cities plunged 16.9% in May from a year earlier. None of the cities saw price gains.

The debate continues to rage about when home prices will bottom. It seems like the stock market won't be set for a sustained recovery until investors get comfortable with this issue.

Those on the optimistic side include Jim Cramer, who said in a Street.com TV webcast today that he expects a "dramatic end" to the decline in home prices six months from now. He's bullish about the effect of the $300 billion that Congress has authorized for the Federal Housing Administration to help homeowners refinance their troubled mortgages. (To hear more of Cramer's comments on the homebuilders, watch the video: Cramer: Centex Sets Tone for Builders.)

Others are much more bearish on an eventual recovery in home prices. Wachovia economist Mark Vitner expects the S&P Case-Shiller Index won't bottom until late 2009 or early 2010.

"Estimating how far prices will decline is more art than science," Vitner said in a recent research note. "The current housing boom is without precedent in the modern era."

Vitner says homes are still priced too expensively versus homeowner income levels and housing rents.

In order to get back to a proper equilibrium, housing prices will need to fall further. Vitner's best guess is that the S&P Case-Shiller 10-city Index falls 28.6% on a peak-to-trough basis. That means more pain is ahead.