The bottom to the California home price free-fall is still not in sight. Last week Standard and Poor’s released its monthly index of metro home prices, and California still registers a growing year-over-year drop. The composite average for San Francisco, Los Angeles and San Diego prices dropped in October by 28 percent from the previous year, the largest year-over-year drop recorded by the state, and exceeded only by the Sunbelt cities of Phoenix, Las Vegas and Miami. As you can see from the chart below, the trend is accelerating.

According to this index, California’s composite home prices are equivalent to where they were about five years ago, in the summer of 2003.

?California Composite Home Price IndexCalifornia Composite Home Price Index

Tumbling prices are having an enormous impact on new construction activity, which would have to improve to become anemic. Residential single family starts dropped by 50% year-over-year, although multifamily has rallied somewhat. Still, single family activity is in record low territory.

?California Single Family Residential Housing StartsCalifornia Single Family Residential Housing Starts

Finally, in a lesson that should not be lost on state policy makers, federal efforts to stimulate the housing sector have failed miserably. The vaunted Hope for Homeowners program, which was touted to offer as much as $300 billion in government-guaranteed home loans to as many as 400,000 homeowners whose current mortgages exceed the value of their houses, has flopped. There have been only 312 applications so far, according to HUD. At that rate, the three-year program would help only about 5,400 borrowers.

Unfortunately, some private sector efforts are not doing much better. Hope Now, a government-backed alliance of mortgage lenders, said it is on track to keep 2.2 million homeowners out of foreclosure in 2008 — but banking regulators said that about half of the loans modified in the first three months of the year fell back into delinquency within six months. The fault here probably has more to do with recession-related unemployment than stingy refinancing terms by lenders.

The take-away: housing starts won’t rebound until (1) prices stabilize in the market as a whole, (2) construction inputs come down to meet the new demand curve, and (3) the overall economy improves to better position residents to purchase new or improved housing. Until then, it is hard to see how any state government housing support programs can materially improve the market. The next best option will be to identify areas where state action can reduce housing construction and purchase costs.