The New York Times reports housing prices in the U.S. flatlined in October, 2009 despite low mortgage rates and a homebuyer’s tax credit. These incentives, which should have been powerful enough to continually prop up national prices, were not enough to combat the price depression created by approximately 3.2 million new and existing unsold single-family residences (SFRs) that month.

A combination of high unemployment and the failure of the current administration’s foreclosure prevention measures will result in an estimated 2.4 million foreclosures this year.

Considering the fresh wave of foreclosures expected, what will happen to prices in the coming months when the Federal Reserve Bank (The Fed) begins to raise interest rates and the government tax credit extension has expired?

Prices are predicted to fall by another 10% nationwide.

Another price drop would push more homeowners into underwater situations.

The only timely and effective way to deal with an underwater home – negative equity and homeowner insolvency – is to reduce the principal balance on the home loan, or in other words, a cramdown.

But lenders have continued to resist the reportable loss on the loan created by a cramdown. They prefer the slow bleed of extensive nationwide foreclosure, refusing to acknowledge the market value of the mortgages, which is less than the value of the home which secures the loan.

Loan modifications are not working.

There is only cure for underwater homes and the nations and California’s underwater housing woes: the cramdown.

first tuesday take: While the nation saw a price flatline in October, the home sales did increase in California, mostly thanks to speculators who have been chasing the market to get ahead of the homebuyer, which runs up the price of housing.

[For a look at California’s October sales increase, see the November 2009 first tuesday article, Some perspective on the recent increase in home sales volume.]

Otherwise, there is little to say that first tuesday has not already been saying since the beginning. Hopefully America will wake up, and demand what is required to bring this nation back to stability.

For more reading on virtues of cramdowns, see:

Re: “This Year’s Housing Crisis,” from The New York Times