Home prices in the US fell another 2.5% in December, and tumbled a record 18.5% in the past year, according to the S&P/Case-Shiller Home Price Index. The index, which tracks the values of homes from 20 different metropolitan areas in the US, has fallen by over 27% from its peak in June 2006. All 20 cities reported depreciation in prices for December, while all 20 reported declines in the last year, as well. 

Although painful, this is a positive step in the arduous recovery of the housing market. As excruciating as it can be, it is a necessary step in the recovery process, as excesses in the marketplace must return to equilibrium; the irrational exuberance must be washed. No government program, bailout, or any amount of money will fix the problem. It will only delay the inevitable. As reported in an earlier post, as prices fall, sales rise, thus decreasing inventories. That is the only way to clear excesses and stop the pain, not by keeping people in houses they could have never afforded in the first place.

Here’s how prices in the 20 cities performed in the past year:

Read the Full Report.