[AndyJackson]

Housing has to come back in line with what is supported by people’s incomes, not what is made “possible” with absurd and fancy loan products. When housing is sustainably affordable based on mean household incomes (ie, that the median home price is back in the area of 3.0X median household income), then home prices can be supported by actual income. In California, they have easily another 15%+ to fall to get into the range of sustainable home prices without fancy mortgage products.

There is an added dimension to this deflation which is that a lot of "median income" that has supported the housing bubble was generated by income earned off of the housing bubble. So, as deflation occurs, incomes that derived from asset inflation will disappear.

This kind of restructuring is going to be very painful.

[sanchmo]

CPI-adjusted, the mean US home price from 1950 through about 1995 has increased at a slower rate than real GDP growth - mean home price starting at about $150k in 1940 and reaching about $165k in 1995 (those are approx 2007 dollars, IIRC). Then in 1995-2005 they soared to over $250k.

I figure they need to drop 35% back down & reach $165k mean home price again, plus a little lower because the non-mortgage aspect of this crisis (lost jobs, lost retirement savings, etc) will cause additional over-correction.