San Francisco, Los Angeles and San Diego are included in the nation’s top ten metropolitan areas with the biggest drop in home values since the Great Recession. The latest Standard & Poor/Case-Shiller Home Price Index indicates the composite price of single family residences (SFRs) in the ten cities decreased 2.7% last year. Their composite values are now 30% below levels from the housing market’s peak in April 2006. Worse, no sign exists that price levels will rise soon.

California price levels in 2010 decreased near 2% for both San Francisco and Los Angeles. San Diego was an exception to the general plight of California’s cities and recorded a paltry price level increase of 0.1%. All three cities recorded a drop in the month from December 2010 to January 2011. Prices dropped month on month 1.9% in San Francisco, 0.6% in Los Angeles and 1.2% in San Diego.

The S&P predicts weak SFR price trends for the remainder of 2011.

first tuesday take: If they have not already, California homeowners, buyers and real estate brokers and agents need to snap out of the money illusion of high home values perpetuated during the Millennium Boom. Prices continue to slip downwards toward their true dollar value and the illusions of past are honored at one’s peril. [For more information on the drop of home values in San Diego, Los Angeles and San Francisco, see the March 2011 first tuesday Market Chart, California Tiered Home Pricing.]

The current price decline we are witnessing was fully expected to follow the premature home purchases induced by government subsidies in 2009 to mid-2010 ― by its end the public was not buying homes on their own volition. Market momentum of the artificially-inflated home prices built up and culminating with the housing price peak in 2006 was ill-fated to collapse, forcing home prices to return to historical trend levels. The continual drop in prices is a result of the real estate market correcting itself as property prices stabilize at their lower and more accurate evaluation. A reversal of the current decline in consumer confidence would be helpful.

The price adjustment will likely run into 2013 and our relatively jobless recovery underway will not make it quicker. When the California economy does begin to produce 400,000 plus additional jobs annually in California, it is imperative for real estate brokers and agents to steer the thinking of buyers and sellers away from the illusory sticky price of Boom years past. Until these jobs are created and this advice is taken, the housing market will simply not get up and running. [For more information on how sticky prices affect recovery, see the December 2009 first tuesday article, The flat line recovery: a side-effect of sticky housing prices.]

Re: “House prices: Weather warning” from The Economist and “Home values drop in S.F.,other big metro news” from