Based on the latest month’s closed home sales, my simplistic but thus far pretty effective Case-Shiller HPI model forecasts a September decline of 3.0% for the HPI:

This is about the same as the projected August drop of 2.9%. Unless the single family median price per square foot is throwing off bad signals, it appears that home prices have accelerated their decline as we’ve come out of the "spring rally" (which in this market just means that prices declined at a slightly slower pace).

Here’s a look at the size-adjusted median for both property types.

And the vanilla median:

Volume was very strong in September — the highest September in 2 years:

And inventory was flat:

Leading to a 2 year low in months of inventory for September:

This is usually the part where I say, "yeah, but…" and put up a scary chart of foreclosures and the pent-up distressed supply that they represent. But what’s this?

The market hasn’t rocketed back to health, however… as described in the prior Voice post this is in all likelihood an artifact of the new state law that inserted an extra 30 days into the pre-NOD process. Meaning that NODs will probably be back to their former world-beating levels soon.

Looking forward, there are a couple of other elements to consider.

On the negative side, it’s very clear that the economy is in recession and that job loss could get worse — and not just in the housing-related industries this time. That’s certainly not good for an already ailing housing market. One of my little theories has been that the higher-end areas might start to lose their lustre of quasi-invincibility if the housing downturn started to be driven more by job loss than by risky mortgage explosions. (I base this on the fact that in the 1990s bust, which was primarily unemployment-driven, high-end areas took their licks with everyone else).

On the positive (for home prices) side, the government is throwing everything they have at it. In the last rodeo, I put up a list of actions that the feds might take to prop up housing:

• loan principal reductions (the government does after all pretty much own the mortgage market at this point)
• bans on new foreclosure activity (ditto)
• forceful lowering of mortgage rates (as suggested by Bernanke in his infamous 2002 speech on deflation)
• helicopter money (aka "stimulus checks", also proposed, more or less, in the same Bernanke speech)
• who knows what else

I forgot an important one at the time: reset bans. People talk a lot about the wave of option ARM recasts in 2010, but that’s a long time from now… the government may well put limits on how much payments can be reset upward. At this rate, I think this is likely — especially since, courtesy of the Paulson plan, the government may become the owner of a lot of these mortgages.

This week, McCain came out and said he would throw money at buying mortgages and writing down the principals. Many of us have expressed concern at the unintended consequences should they cross the loan balance reduction Rubicon. Nonetheless, the "Everyone Should Stop Paying Their Mortgages Act" seems like it is very much a possibility given the level of government desperation to stem the bleeding by any means necessary.

All in all there are serious market distortions going on, many of which are intended to attempt to offset the negative effects of the credit crisis and economic slowdown.

As a result of all these crosscurrents, forecasting the long-term future of the real estate market is becoming an ever more sketchy proposition. Near-term, it looks like more of the same.