A 30% drop would bring us back to the trough ratio of 9, which we had in 1985 and 1998. However, a 50% drop would bring us back to where we should be if home prices had risen with inflation, as they typically do. At 5% inflation, home prices should have continued on from their 1997 value of $200K to be about $320K today. I think we could have a larger than 30% correction via the median house price/per capita income ratio, because this time we have so many other factors: most new jobs tied to real estate, easy credit, equity already spent (housing ATM), and the deficit and falling dollar which could cause their own recession. In January, we’ll see a glut of inventory, and then just watch it go down from there.
Interesting point about the people who claim they don’t need the equity from the sale of their house:) I’ve heard so many homeowners tell me they hope housing values drop, they hope I’m right in selling, they don’t care if values go down. Are they all nuts?? They are in denial. Admitting they cared means they must do something about it, and homeowners are too emotionally invested in their homes to sell, are too worried about the stigma of being a renter, and are too used to hearing that you must own a house to build equity and reduce taxes. It’s a new mindset for folks. If they really don’t need the money from the sale, ask them if they would be willing to donate it to charity.