By coincidence, last night I was looking at a fancy flier produced by a real estate agent desperate to sell a house near mine. The tiny two-bedroom, one-bath home, half a century old, is still listed at more than $400,000. That's about a 20% cut from the asking price for similar homes in this neighborhood last year (believe me, I check them regularly). But it's still not cheap enough. The home's been on the market for months, and the owners have received only three offers and rejected them all. My guess is that the seller is "anchored" to the price he paid a couple of years ago. Nowadays a house isn't worth what you think it's worth (i.e., "more than I paid") -- it's worth what you can convince someone to pay you.

Apparently, not everyone is as anchored to the past. The S&P/Case-Shiller U.S. National Home Price Index shows an unprecedented 3.2% drop in home prices between the second quarters of 2006 and 2007. (On a sequential basis, that's a 0.9% drop from Q1 of this year.) This index, by the way, doesn't include new construction prices, so discounting by hard-pressed homebuilders such as Toll Brothers (NYSE:TOL), Beazer Homes (NYSE:BZH), Pulte Homes (NYSE:PHM), Ryland Group (NYSE:RYL), and others is not reflected in the bad news.

Neither, of course, are the unreported giveaways that desperate home sellers have been using to try to unload houses -- everything from granite countertops to free vacations to luxury cars. Net these costs from the sale price, and I bet you'd see an even darker outlook.

This confirms my suspicions about the National Association of Realtors' sales release yesterday and its shameless attempts to spin the negative as positive. With more inventory on the market and prices dropping all over, America's get-rich-quicksters have stopped flipping houses easily, and if they aren't lucky, they're going to start flipping burgers. Big waves of resets on adjustable-rate mortgages -- the gimmicky financing the industry used to get so many suckers on the hook -- will only lead to more desperation sales and more foreclosures, and that means more inventory. And so the downward spiral will continue.

That will mean bad things for homebuilders, as well as for banks such as Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), Washington Mutual (NYSE:WM), and others that made so much money on the back of this phony boom.

The only thing left to wonder is why the media consistently reports on a return to normalcy in home sales and home pricing as if it's a bad thing. Sure, it hurts. But there's no such thing as free money, at least not forever.

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At the time of publication, Seth Jayson, a top-10 CAPS player, has no positions in any company mentioned here. See his latest CAPS blog commentary here. View his stock holdings and Fool profile here. Fool rules are here.