I agree with DaCounselor. My guess is that prices will not drop too much in nominal terms. However a small nominal drop, followed by 5 or 6 years, or more, of wage and general price increases, will make housing relatively affordable in real terms (i.e., inflation-adjusted house prices will drop considerably).

We can’t compare 2006-2007 with the 1992-93 price drop because we are unlikely to see the job losses that followed the closing of many aerospace employers at the end of the cold war.

Also, technological improvements have resulted in huge gains in labor productivity, which translates into higher incomes, and cheaper consumer goods. Global trade is an even stronger factor in making consumer goods less expensive. All this translates in more disposable income left over for housing. Compare how much typical household items cost at WalMart today(relative to salaries), versus the same ratio 20 years ago. My point is that salaries have a lot more purchasing power than in the past, and it’s natural that some of the slack will go into housing.

Is the housing bubble over? Yes. Will house prices drop? Most likely, but no one can’t tell by how much. Is the sky falling? No way.