Ask the average guy on the street about things like European Central Bank support for Greece or the intricacies of the deficit debate in Washington, and watch his eyes glaze over.

You might hear something like "those euro-socialists deserve it" or "politicians can't get anything done" -- but the topic will quickly shift to something more aligned to the national interest. Even if it's the Rush Limbaugh contraceptives furor.

For most Americans, there are only two economic data points that matter: the unemployment rate and the strength of the housing market. Both have been showing signs of life, with the jobless rate dropping to 8.3% while home sales, builder confidence and home inventory-for-sale have all improved.

Time to pop the confetti and buy a few Miami condos?

Not quite. Unfortunately, both areas have been misleadingly positive. I gave you my take on the job market in a recent blog post, "Why the job market still stinks." Now, I want to warn you about housing.

Image: Anthony Mirhaydari

Anthony Mirhaydari

The truth is, a combination of factors is set to push national home prices down an additional 10% or so before a hard bottom is found. And if Europe's debt mess and fiscal bickering in Washington result in another recession, the drop could be double that.

Here's why.

Next leg down has already started

The problem with much of the recent enthusiasm is that it's been based on rising home-sales data, which when put in percentage terms by headline writers, makes the gains seem dramatic. Take last month's report on existing-home sales. On a month-over-month basis, sales were up 4.3%; great news!

But at 4.6 million units annually, the sales rate is pitiful compared with the 7.3 million sales peak hit in 2005.

Also bolstering sentiment has been a drop in the supply of housing available for sale. At 6.2 months of supply, the market has returned to "normalcy."

Again, this is misleading. Because of the "robo-signing" foreclosure scandal, the big banks have dramatically slowed the rate at which they push delinquent homeowners through the foreclosure process. Until they iron out the wrinkles, they would rather let deadbeats get a free ride than compound what was already a public-relations nightmare.

The specifics? Data from RealtyTrac show that the number of foreclosure filings has dropped from the 2008-2010 running rate of around 100,000 per month to closer to 60,000 per month now. Because of this, the time between a borrower going 60 days delinquent on a mortgage and liquidation of the property has increased to nearly three years -- up from just five months in 2004.

With the five largest banks and the government reaching a settlement in February, all those postponed foreclosure filings are about to move forward -- unleashing a wave of distressed properties into a weak market. Gluskin Sheff chief economist David Rosenberg notes that when this complete "shadow inventory" of homes is properly accounted for, that number for months of supply on sale in the housing market will jump from 6.2 into the double digits.

Even narrowing the inventory to just homes that are vacant with a "for sale" sign in the yard, there are still around 3 million excess residential housing units on the market. That means that even if builders stop all activity and no new homes come to market, it would take nearly eight months to clear them out.

No wonder prices are weakening again. According to Standard & Poor's Case-Shiller Home Price Index, prices have fallen eight months in a row and have reached new post-bubble lows, with prices returning to levels not seen since late 2002. In other words, although the recession officially ended in 2009, the housing market continues to weaken.

iShares Dow Jones U.S. Home Construction Index exchange-traded fund chart ©

Hardly a reason for optimism. And yet the iShares Dow Jones US Home Construction ETF (ITB), charted above, has nearly doubled off of its October low.

(Before you accuse me of acting like Chicken Little, a bit of disclosure: I recently bought a home. So while the market might still be unsafe for speculators and condo flippers, I do think they are attractive deals out there for long-term owner-occupants.)

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Reality is setting in, however. Economists up and down Wall Street are marking down their growth forecasts as data on things like durable goods and factory activity disappoint. And now, the ITB exchange-traded fund is in the midst of a new downtrend, nearly 8% off its high as it drops below its lower Bollinger band -- a sign of intense selling pressure last seen during the August market meltdown.

The heavy hitters in the sector are looking similarly weak. DR Horton (DHI, news) is dropping out of a three-month topping pattern in a huge way. Others including Toll Brothers (TOL, news) and Pultegroup (PHM, news) are similarly looking vulnerable to a medium-term pullback.

There's good reason for investors to head for the exits.