It’s interesting to compare Q3 and Q4 2008 home prices side by side. There exists an apparent resilience in many low-cost, mostly rural, locales. Maybe it should not be surprising that areas with home prices above $200,000 are most affected by the credit crunch that defines this terrible recession, with states such as California, Florida, and Nevada continuing their declines.

With some Morgan Stanley analysts predicting low inflation for the next 2 years, the road to rapid housing asset price normalization would seem to now lay solely with outright price declines.

As inflation remains tame and credit tight, even modest nominal dollar home appreciation in urban areas appears unlikely for the next one to three years. Complicating the picture is that real-dollar home values are cycling downward and once-booming parts of the U.S. have another 20% to 30% further to drop before turning upward.

Given the pervasiveness of the current credit crunch, it is not clear to me that any other path is at present possible (or desired) than to get the worst of the fall behind us so that we may begin anew to focus on a path of rebuilding, growth, and opportunity.

The pretty animations above are compiled from data released today by the OFHEO. Methodology is that of my original home price heatmap. For the data nerds out there, you can download the compiled numerical results for Q3 2008 and Q4 2008.

Colors on the heat maps are keyed as follows: red is for homes that are selling above their historical price trend and blue highlights those states with sale prices below their long-term inflation adjusted trend based on same-home sales data that spans over 30 years, from 1975 through June 2008. Typically regions experience approximately 20 year cycles with values ranging from 85% to 115% of baseline with each city area following the march of a different drummer. However in this most recent ramp up, all major U.S. cities (and anecdotally globally as well) synchronized to be on the same boom-bust cycle.