For most metro areas, home prices peaked some time in 2006 and except for a few minor bumps, it’s been all downhill ever since. 2010 has been no exception. So, if we tally up all the annual sales data since 2006, it’s been a four-year run of bad news regarding the direction of housing values.

Enough is enough, you say, and we should begin 2011 with renewed optimism and vigor. I got your back there, but it’s a weak defense, because intersecting trend lines, including an unexpected, but very strong post-tax credit slump and a shadow inventory problem will keep housing prices heading in the same direction — down. Expect another 5 percent to 10 percent decline in housing prices in 2011.

Standard & Poor’s credit analyst Erkan Erturk tries to stay optimistic when it comes to reporting about the housing market. "Looking at where we are today as compared to the days of 2008 through mid-2009 when home-price indices (S&P/Case-Shiller) were showing over 10 percent declines on a 12-month basis, the market has, indeed, stabilized, even improved," Erturk reported.

However, that stabilization doesn’t diminish the fact that Standard & Poor’s analysts predict home prices will decline another 7-10 percent in 2011.

The good news, Erturk stressed, is that declines have decelerated. The bad news is, the timeline for declines continues to stretch out into the future.

The problems are numerous. First, unemployment is still a major weight on homebuying trends. Not only are unemployment numbers persistently high, but even those citizens with jobs are feeling insecure, all of which means people who would normally be looking for a new house definitely won’t be. Demand continues to trail supply.

Secondly, back in November, the Federal Reserve unveiled a new stimulus plan involving the purchase of $600 billion of U.S. Treasuries. It was thought this event would push mortgage rates down. The opposite has happened. Mortgage rates along with Treasury rates have been going up. Higher mortgage rates will not be helpful in getting more people to buy homes, which, in turn, would stimulate prices upward.

Thirdly, after holding back on putting foreclosed and distressed properties back into the market, banks have been getting more aggressive. As these properties leak into local markets at reduced prices, home values cannot move upward. In fact, home prices are more often than not pulled lower.

"If distressed inventory comes into the market slowly, it is always helpful, as the market can digest the new supply," said Erturk. "At the same time, if they come into the market too slowly, you are prolonging the problem and the market won’t hit bottom for a few more years."

One of the biggest obstacles to house prices moving higher and not lower is the unexpected aftereffects of the home-purchase tax credit that was successful for what it was designed to do: stimulate demand by enticing buyers into the market.

"The problem was that in 2009 and 2010, we were pushing future demand forward," explained Scott Sambucci, director of business development at Altos Research in Mountain View, Calif. "Some buyers would have eventually bought a home anyway, with or without the tax credit.

"These are people who may have waited a year, perhaps to 2011, to buy, but because of the tax credit they were enticed into the market. Once you have exhausted that group of buyers, it leaves you a smaller pool of buyers in the future years. That’s one challenge for 2011 — some of those buyers of 2009 and 2010 were pulled forward."

Sambucci is another optimist with bad news. "We don’t like being bearish," he said, before letting me know that he thinks home prices will decline another 7-9 percent in 2011.

Perhaps the biggest roadblock to getting home prices to reverse direction is shadow inventory overhang.

Shadow inventory — and I’ll use S&P’s definition — consists of outstanding properties whose borrowers are, or recently were, 90 days or more delinquent on their mortgage payments, and properties in foreclosure and REOs.

According to S&P, the time it will take to clear the supply of distressed homes on the market, or those that need to be resold because of defaults, declined after reaching a peak in mid-2008, but has been on the rise again since fall 2009. As of mid-year 2010, S&P estimated it would take the existing shadow inventory 40 months to clear.

Another way to look at this problem is: Approximately 2.09 million properties were in servicers’ foreclosure inventories at the end of October, according to Lender Processing Services Inc. Combined with the number of loans that were 30 days delinquent, the total number of noncurrent loans reached 7.04 million.

One optimist who has mixed the numbers to look almost good is Alex Villacorta, a senior statistician with Clear Capital in Truckee, Calif. Some analysts were saying home prices would decline 5-10 percent in 2011 as far back as September 2010, Villacorta noted, but between August and November 2010 prices had already fallen 7 percent, so the big decline may have happened sooner than later.

"We will see a majority of the falling prices during the winter," he said. "I don’t think that minimum 5 percent decline will be spread out through all of 2011. If it does occur, it will be in the first part of the year."

The other cogent observation from Villacorta is that home prices in individual metros have been breaking out of the pack.

During the housing bubble, individual markets generally moved downward in a consistent line, but now markets are "splintering." Housing prices in some metros continue to decline, some are stabilizing, and a few have now reached recovery.

"When people talk about national averages, historically, that was OK," he said. "But with the volatility these markets have seen over last couple of years, it’s a brand-new ballgame."

Villacorta likes the trend lines for New York and Washington, D.C., and suspects the housing market in those two cities have already hit bottom. He’s a little concerned about Denver, which was moderately affected by the deflation of the housing bubble only to be hit hard by the economic recession.

At the bottom of Villacorta’s list are the usual hard-hit areas of the country in Florida, Arizona and California, but taking the crown as the worst of the worst is Las Vegas, where almost three out of four homes have been foreclosed.

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