Economist Peter Dawson said the U.S. housing market is beginning to show signs of bottoming in that, excluding foreclosure-related sales, high-end sellers are substantially lowering their home sale prices, "which usually is sign of a market that's adjusting to high inventory levels."

"Initially, during a housing recession, home owners at all price levels are in denial and they refuse to lower prices, which leads to large increases in the inventory of unsold homes. Potential home sellers either believe the market will snap back quick, or their house 'is different and is worth more than the rest,' " Dawson said.

"Then, usually a year to 18 months later, you begin to see a major price break, where home owners realize 'the market has changed, my house value has dropped, it may drop more in the year ahead, I better lower my price if I want to sell it.' That leads to a large decline in prices, which typically marks the start of the price bottoming process."

In California's case, Dawson said, ten of thousands of homes previously priced slightly above $1 million are now "20-35% below it."

Psychological barrier breached

"The $1 million level is also a psychologically significant level and barrier. People don't want to admit that there formerly $1.25 million or $1.1 million house may be worth $900,000 or $800,000 or even less, and this adds to housing backlog pressure," Dawson said. "Then, once the $1 million floor is broken, the delayed price reduction is corrected by large price drops, which is what we've seen in California."

Housing Analysis: Dawson added that the best-case scenario for U.S. median home prices would be a recovery in late Q3 / Q4. However, if the U.S. economic recovery does not start in Q3, median home prices are likely to remain under pressure in most regions of the U.S. well into the first half of 2010.

One caveat: If the U.S. Congress, as part of the upcoming fiscal stimulus package, passes a $10,000-15,000 tax credit for home buyers, that will stimulate housing market demand and hasten the housing sector's recovery, Dawson added.