As Cleveland goes, so goes the nation?

That's one hopeful way of looking at the Case-Schiller Index, which tracks home prices in 20 major cities. The data for April, which were released this morning, show that Cleveland—whose prices had fallen nearly 14 percent from its peak in August 2006—might be stabilizing. "The fear had always been that prices in markets like Cleveland would go too low, but the data suggest that Cleveland has found a bottom and may be bouncing back," observes Dean Baker, economist and cofounder of the Center for Economic and Policy Research.

Baker presented his latest take on housing market conditions during a teleconference this morning, and on the whole his prognosis is not good. The Case-Schiller Index in April, at 169.85, is down 15.2 percent from the same month in 2007. Adjusted for inflation, the decline is closer to 20 percent, Baker estimates, which means that over the previous 12 months, the housing market lost $4 trillion in value.

While some cities, such as Seattle, Dallas, and Denver, have enjoyed modest price increases, other major metros have seen home prices spiral downward. The composite annualized index during the first quarter for the cities Case-Schiller tracks declined by 22.1 percent, a falloff that Baker observes hasn't been as steep since the Depression era in the 1930s. "Bubble cities," which experienced huge price run-ups earlier this decade, have even seen an acceleration in their price erosions, says Baker: Annualized rates during the first quarter were off 35.6 percent in Phoenix, 33.7 percent in Los Angeles, 35.6 percent in San Francisco, 36.8 percent in Las Vegas, 31.5 percent in Miami, and 29.3 percent in Tampa, Fla.

"I don't see any reason to believe this is going to change in the near future," says Baker. That' especially true for lower-priced homes, where price declines have been far more dramatic: Baker notes that in the first quarter, houses at the bottom third of the market in Phoenix saw their prices drop 42.7 percent, in Miami by 42.4 percent, and in Los Angeles by 48.5 percent. On the other hand, in San Diego, where home prices rose relentlessly during the boom years, prices have fallen by 33 percent from their peak. Baker thinks prices might need to fall another 15 percent, to below 2000 levels, before San Diego reaches bottom.

Baker is considered to be among the more pessimistic of housing economists, but his outlook now sounds practically mainstream: This morning, Global Insight’s housing analyst Patrick Newport told MarketWatch that he also believes the Case-Schiller Index might need to fall another 20 percent to 30 percent, and that prices would need to go down another 10 percent, before the housing market stabilizes. Both Baker and Newport agree that the overabundance of unsold homes on the market is one of the primary reasons why home prices keep declining. Baker, though, points to two other factors: interest rates and unemployment, which have both been creeping up. Baker expects interest rates to hit 7 percent by the end of this year.

He also notes that declines in home prices are being exacerbated by the sheer volume of foreclosures that are dragging down prices in all markets. Baker worries that foreclosures will put more stress on Fannie Mae and Freddie Mac, which are now guaranteeing about 80 percent of the mortgages being issued.

Like other economists, Baker says pricing is simply a function of too many unsold homes on the market. He doesn't anticipate a return to "normal" supply levels until late 2009 at the earliest. He is concerned, though, about the fate of neighborhoods with lots of unsold homes that, in some markets, have been vandalized. "I don't know what's going to happen to those homes. Maybe an investor will come in an tear them down. That wouldn't be a good thing, but the plus side would be that it would reduce the oversupply."

Learn more about markets featured in this article: Las Vegas, NV, Phoenix, AZ, San Diego, CA, Los Angeles, CA.