As goes housing, so goes the rest of the economy. So where do things stand? After two years of precipitous declines that have taken prices down almost 30% from the peak, house prices are finally approaching fair value (which is perhaps 10% below today's level).
That doesn't mean that house prices will only fall another 10%, however. On the contrary, given the tendency for prices to overshoot, it would be startling if house prices stopped at fair value. More likely, they'll drop at least 10% below fair value before they finally trough. Although the rate of decline is likely to ease over the coming months and years, therefore, prices will likely keep falling through at least 2011. And there's at least 20% downside left.
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