Case and Shiller released their October housing price index on Dec 30. It is a 3-month moving average (that is, the October value uses housing prices from Aug, Sept, Oct).
The Oct value of the index is 2.0% below the Sept value, which was itself 2.0% below the Aug value. As I predicted a couple of months ago, housing prices continue to fall. They will fall (and housing construction will continue to be essentially nil) until they are near construction costs. This should happen this summer.
Obviously, housing prices and construction costs can come into line in two ways: housing prices fall further, or construction costs rise. Construction costs stopped rising in October -- the October PPI for residential construction was actually 1.2% lower than for September. November's was another 1.3% lower than that. Unless we get some significant inflation in the very near future, it looks like owners of mortgages are going to see their loans decline further in value because falling construction costs are yet another force pulling down the value of their collateral.
A silver lining for banks is perhaps that markets already had anticipated some construction cost declines.
disclusure: long XLF