Some measures, such as the S&P/Case-Shiller Home Price Index, show the national housing market is slowing stabilizing. However, America (and more specifically California) hasn’t hit the bottom yet – and we still have a painfully long way to go before we do.

The Case-Shiller Index reports national home prices have increased 3.6%, though this statistic presents only a partial glimpse into the truth. There are two white elephants in the room which need to be identified before this rosy conclusion can be swallowed in its entirety. First, the disproportionate number of people prompted into immediately buying property by the first-time buyer housing subsidy. This abnormal flux of buyers, eager to take advantage of the tax credit, artificially propped up a substantial portion of the gains reported in the Case-Shiller Index and will likely draw it down as next year’s buyers have been cannibalized for this year’s sales. Second, there’s an ominous wave of new foreclosures rapidly approaching California as higher priced loans and prime mortgages go into default. Also, a massive number of option-adjustable rate mortgages (ARMs) originated three and four years ago are soon to upwardly reset.

first tuesday take: It is premature to break out the celebratory champagne. The positive indicators we see in the Case-Shiller Index, as alluring as they are, have zero longevity and are deceptively reductionist. They do not take into account the (temporarily) increased volume of buyers who purchased as a result of state and federal subsidies, and they do not consider the deluge of future foreclosures and REO resales which are looming just beyond the 2010 horizon. The market cannot experience sustained improvement until this painful but necessary price correction is complete and real estate market fundamentals for pricing and paying are restored to California.

Anyone active in this brutal market will tell you that now is not the time to quibble over the relative merits of an optimistic versus pessimistic economic view. Only realistic views and actions, looking intelligently forward, will pave the way towards our much needed long-term recovery.

Re: “Homes: About to get much cheaper,” from Yahoo News.