By Caroline Baum
Bloomberg News Columnist

With U.S. home prices back down to their 2009 lows, you might be wondering what all the government programs to stabilize the housing market have accomplished.

And for good reason. Various federal initiatives, especially the first-time homebuyer's tax credit, seemed to put a brake on the three-year dive in prices from July 2006, the peak, to April 2009. Home sales and prices bounced, only to hit the skids when the program ended in April 2010. Which is what you'd expect when the government stops cutting checks for $8,000, payable to the homeowner on completion of his purchase.

Was the two-year respite worth it? Would prices have fallen harder and faster if left to their own devices and now be showing signs of stabilization?

It sure seems that way. Instead, two years and billions of dollars later, home prices are back to their 2009 lows, according to the S&P Case-Shiller Index for February. (For sticklers, the unadjusted index was actually 0.01 point higher than in April 2009.)

There are a couple of reasons to think that, without intervention, the housing market would have "cleared" by now, and that buyers would be attracted by falling prices rather than taxpayer dollars.

First, a home price index constructed by CoreLogic, a real-estate research firm in Santa Ana, Calif., shows signs that home prices are stabilizing. Unlike Case-Shiller, CoreLogic's index excludes distressed sales, which are driving the declines in certain markets.

Case Study

The other piece of evidence is a case study by Tom Lawler, president of Lawler Economic & Housing Consulting LLC in Leesburg, Va., that, just coincidentally, tests my hypothesis.

In "A Tale of Two Counties," Lawler compares two Washington metro areas: Prince William County, Va., and Prince George's County, Md. Both counties witnessed rapid home-price appreciation during the housing boom. Both had higher-than-average (for the D.C. suburbs) shares of subprime mortgages. And both saw prices take a dive from their 2006 peak.

Today, home prices in Prince William County are above the 2009 lows, while those in Prince George's County still are declining. The difference seems to be the speed with which foreclosed homes were resold.

Virginia has one of the fastest foreclosure timelines in the nation, according to Lawler. House prices fell faster, and inventories were reduced more quickly, in Virginia than in Maryland, where judicial and legislative actions are drawing out the process.

Free The Market

Lawler admits his study isn't conclusive. In an economy, unlike in model-land, one can't hold everything else constant to determine the effect of one variable.

It does support the idea that the faster prices are allowed to fall, the faster unsold inventory can be allocated, and the sooner the market will find its equilibrium.

That's not much consolation to all the underwater homeowners, whose mortgages still exceed the value of their homes. They need another real estate bubble, which is unlikely, to bail them out.

Maybe their children will live to see equity in the home regained. Once the supply and demand dynamics that affect home values in the short run are aligned, good old-fashioned economic fundamentals, such as income growth and housing affordability, come into play, according to Sam Khater, senior economist at CoreLogic.

Dead-Cat Bounce

On that score, there's little reason to expect much of a bounce. Real incomes have been stagnant since the late 1990s, according to Khater. Housing may be affordable now, thanks to depressed prices and low mortgage rates, but interest rates will eventually rise. At the same time, "the rules of the game are changing," with tighter standards imposed for both underwriting and securitizing of mortgages, he says.

CoreLogic looked at regions of the country that experienced the biggest housing busts of the past: the oil-patch states, including Texas and Colorado, in the early to mid-1980s; southern California in the late 1980s-early 1990s, following the savings and loan crisis; and New England, also in the late 1980s-early 1990s. In these cases, it took three to five years for house prices to bottom and six to eight years to reach pre-bust levels, Khater reports.

We should be so lucky. Almost five years after the peak, home prices are still falling in most areas after a nationwide boom and bust. Unemployment is high at 8.8%. And banks are understandably cautious about making new real estate loans.

It turns out that burst asset bubbles, especially when the asset in question is the major one for most households, aren't quite as easy to clean up as the Federal Reserve thought.

The only good news for housing is that Washington is now preoccupied with reducing the deficit. Even if it wanted to, federal government doesn't have the resources to throw good money after bad.

(Caroline Baum, author of Just What I Said, is a Bloomberg News columnist. The opinions expressed are her own.)