If the bubble pops you better believe home prices will drop 25% and that is if the correction is mild and not long lasting. What will happen is that a sellers market turns into a buyers market. Buyers become picky and wait for better deals and many sellers try and hold out a year or 18 months for prices to firm up. Many sellers will list their homes at unreasonable prices in denial of the new conditions. They will sit and hold out as long as they can. Those sellers that must sell to relocate for employment take a 10% hit right at the beginning of the downward price curve. If they have owned the home less than say 5 years they will take more of a loss than is reported because brokerage fees and deferred maintainance costs add to the problem. Their actual losses will be above 15%.
As housing market inventory grows beyond 2 years at current sales rates and the seller hold outs begin to face reality the fall in prices, a reported drop of 15% - 20% after about 12 months is common as the second selling season ( April - August) arrives. Inventory continues to grow with 'for sale' signs seemingly on every block. The newspaper by now will have stories of buyers waiting for further drops in price and homes having recent upgrades representing the few recent sales.
Then the 18 month holdouts must begin to accept reality and the prices will reach a 25% drop. The McMansions for $1,000,000 plus will be hardest hit and will drop to 30% + and the inventory will be at a mulitple year rate of curent sales.
This is what happened in Austin a couple years ago and was considered quite mild with full recovery three - five years hence. Be prepared for such drops over a 12-18 month period. The lower end housing market will drop in 18 months - 24 months as forclosures rise and this happened before anyone used interest only ARMs.
I would expect the next 'mild' localized downturns to have a greater impact than the mild one Austin experienced due to the 100% increases on both coasts in the last 2 years and the 'creative financing' of the mortgage market.
You are in denial if you think recent price run ups will protect your equity. The hit will be harder and a 5 year + timeline will be necessary to turn the market to neutral or a sellers market. A decade may be more likely during the next bubble correction and the prices may never return to the peak in our remaining years.
Take heed my friends in California, D.C., NYC, Miami, et. al.
I perdict a 50% drop in some areas. Woe be to those who drew out equity for life style reasons or who bought a second home with the money from HELOCs.
The least severly hit and quickest to recover will be resort and rural retirement destinations in smaller towns.