As you can see, these formerly hot markets are cooling off, with lots more homes for sale and prices either down a bit or up less than they were during the bubble. But how reliable is this data? The inventory numbers seem pretty consistent with the tales of woe coming from real estate agents around the country. But the prices look less trustworthy. Shouldn’t they be down more if there are twice as many homes for sale?

Of course they should, and in reality they are. The declines just don’t show up in the official numbers—yet. Consider this from the Contra Costa Times:

With so many new homes on the market, builders are having to become more creative as they try to stand out -- especially in areas such as East County and parts of Alameda County with a high density of new homes.

"The first thing people say when they enter the sales office is, 'What's your incentive?'" said Burton, whose firm created Waterford at the Lakes and Reflections at the Lakes in Discovery Bay. And Burton doesn't disappoint. He can offer a Discovery Bay Country Club membership with each home purchase (worth $8,920) -- as well as below-market financing, custom upgrades and a break on closing costs.

Other builders also provide tempting offers: Discovery Homes' Brighton Station in Brentwood and Pheasant Meadows in Oakley say the first buyer to close escrow on a home will get a chance at a Mercedes Benz…Pulte Homes' 17 Bay Area locations are giving away a weekly vacation for two to places like Hawaii or New York City…

A $10,000 kitchen upgrade doesn’t lower the price of a house, technically, so builders can keep reporting that they’re getting their asking prices. But the practice does instantly devalue all the other comparable homes that were sold recently without the upgrades. Today’s official numbers don’t reflect this. But soon—when last year’s new houses come back on the market—they will.

For a sense of what this means, consider a recent condo auction in Boston, as reported by the Boston Herald

Just how weak is the Boston real estate market?

We got an idea yesterday. And if you’re looking to sell your home in the near future, the news isn’t good. Brand-new luxury condos downtown saw hundreds of thousands of dollars wiped off their value in the Hub’s first public real estate auction in a decade.

The 31 condos up for sale in the Folio building on Broad Street sold on average for 30 percent below their asking prices. Some barely fetched their minimums. Even the building’s marketing boss couldn’t hide what happened. “I think the buyers got a better value than anybody expected,” Paul Gollinger said after the two-hour auction. “But we’re satisfied, very satisfied...We hadn’t had a sale in the last four months.”

The most expensive properties fell hardest. A $1,760,000 penthouse plunged $600,000 to just $1,140,000. A $1,600,000 three-bedroom apartment with a terrace crashed by half a million dollars, selling for less than $1.1 million. Husband and wife Kevin and Daire Starr couldn’t believe their luck. They got a 1,910-square foot apartment with three bedrooms and two bathrooms for $837,000 - almost $400,000 below the list price, and just $12,000 over the auction minimum. “It was my wife’s birthday this month, and she wanted it,” said Starr. “It was the deal of the auction.”

Buyer Dennis McCarthy, who got a $480,000 one-bedroom condo for $401,000, said he wasn’t surprised to see prices drop. “The asking prices were realistic eight months ago,” he said. “But they’re unrealistic now.”

In total, condos listed for nearly $33 million ended up selling for $24 million. The big losers yesterday? The people who paid full price for the other 65 homes in the building during the last few years. Collinger said the first went up for pre-construction sale four years ago. And they all sold for the asking price.

Think about it: The day before the auction, these condos—none of which had sold in four months—are officially worth x. The day after the auction they’re worth x minus 30%. And—the crucial point—so is just about every other condo in the area. With one stroke of an auctioneer’s pen the whole market has been devalued.

The poor sucker who put nothing down to buy at the peak is now 30% underwater, and, like any rational economic animal, is thinking of creative ways to get out of paying that extra 30%. Or he’s cutting expenses so as to be able to keep paying on his now-wildly-inflated mortgage. Either way, it’s bad for the local economy and augurs for more auctions, more instant haircuts, and a real estate bottom that’s a lot further out than BusinessWeek and JP Morgan seem to think.