There are no rules or laws that prevent any house from losing value to less than what it sold for when they were new, several years ago. A home could have sold for $500k new in 2004 but if there are no takers and the house winds up as an REO, the bank will not sit on it forever and will keep dropping the price until it sells. That price could be $200k, $300k or $400k. All that matters is what someone is willing to pay for it and do they have the money (or can they get a loan) to close the sale. This happens with cars, jewelry and any other item of value that is for sale every day of the year.
