Where are house prices going?

Looking at Shiller’s NYT chart, which ends in 2006, one can see that a simple reversion to trend - back to 110 on the chart - would yield approximately a 45% drop in real prices. I think that’s a best-case situation, but let’s assume it happens over four-year period during which time inflation should be about 10% (at 2.5% or thereabouts per year). Then, in nominal terms, we end up with a 35% drop in prices.

If, as I do, one expects a very severe global recession or depression as a result of the collapsing Minsky credit bubble, then a decline to the depressed levels of about 25% below trend is not unreasonable. Furthermore, I would assume zero inflation over the four-year period due to the intense deflationary pressures from the bubble collapse. For an example, see post-1991 Japan, although I expect worse than that. On these assumptions, one ends up with a nominal decline somewhere in the 60-65% range. Impossible? Unbelievable? Maybe, but that just takes prices back to 1998 (using the Case/Shiller index). Hardly ancient history.