There’s been a lot of talk in this forum lately about economic fundamentals. They are, of course, important. But, in my opinion, for nominal prices to drop by more than, say, 15% will take more than just problems with economic fundamentals. If fear doesn’t set in, I wouldn’t be surprised to see nominal prices drop by no more than 3-4% per year for 4 or 5 years followed by stagnant prices for a few more years. I think that for a larger correction, there will have to be some fear.
I think that for there to be enough supply (scared homeowners wanting to get out in addition to the people who can’t afford their loan resets) and little enough demand (potential buyers who can afford a house but are afraid to buy a house because they think prices are going to continue downward) for a correction of 30% or more in nominal prices, fear will have to dominate the market.
As I said, I think there will be enough supply and little enough demand for a significant (15%) drop. But for a 30% drop, we’ll need some pretty outrageous supply and demand numbers. Numbers that, in my opinion, only dominant fear can provide.