Apparently houses used to be priced around 2x average annual salaries. Of course, one would exclude areas like SF and NYC, but even then if that were taken as what houses "should" be priced at, then they would still have to fall a lot. Perhaps scaling for increases in average square footage makes sense, but I don't think it would make a huge difference. Over the long term, housing should track real wages.

Another way to look at the prices is here (which covers up to 2006):

http://graphics8.nyt..._graph2.large.gif

Clearly, there was a huge bubble...

Ultimately, houses are worth what people will pay for them. If the prices drop far enough, the market will pick up. Until then, the true value is just a guess. But, at the micro level, it's clear that many many houses have become worthless (or nearly so) in areas that were subject to speculation - http://www.calculate...f-peak-price.html

Cheers,
Scott.