Housing prices nationwide will fall another 7%-10% through 2011, according to Standard & Poor's.

"Low mortgage rates will likely continue to encourage refinancing, but their influence on home buying activities has been limited because of the weak housing market and a lack of demand," S&P analyst Erkan Erturk said.

These estimates aren't anything new, and they're consistent with what most private forecasts have been predicting for some time.

There are really two factors influencing home prices: The ratio of housing prices to average income, and months of supply. Here's how each is shaping up:


Source: S&P Case Shiller, Census Bureau, author's calculations.

This shows home prices still about 5%-10% above long-term averages, when measured against average incomes. Since burst bubbles tend to overshoot on the way down, this metric will probably fall below average before settling out. The uptick shown in this chart is a function of the temporary homeowners' credit -- don't expect it to last.

Here's supply:


Source: Census Bureau, author's calculations.

While supply has been jerked around for the past year by the homeowners' credit, anything above six months' supply is typically consistent with falling prices. With supply still comfortably above that level, S&P's call for another 7%-10% fall seems entirely reasonable.

In the long term, I'm fairly bullish on housing, if only because the current level of housing starts is not keeping up with population growth and household formation. Eventually, builders like Beazer (NYSE: BZH) and Pulte (NYSE: PHM) will see production blossom to make up for the gap. But for at least the next year or two, everyone touching the residential housing industry, from Home Depot (NYSE: HD) to Citigroup (NYSE: C), will continue to feel the aftermath of this historic bust. These things take time to heal.