Why home prices could drop 25% more on average before the market finally hits bottom
Starting in 2000, home prices soared far above their long-term trend. They've only just started to return to normal. This chart shows the history of home prices adjusted for inflation going back to 1890, compiled by Yale University economist Robert Shiller. The black line is BusinessWeek's calculation of the long-term trend growth rate: just 0.4% a year after inflation.
The drop in stock prices earlier this decade shows how overpriced markets can abruptly decline. This chart shows the Standard & Poor's 500 stock index adjusted for inflation, stated in 2007 dollars. Prices got back on trend in the last few years, though they've been falling in 2008.