Every day bring more articles explaining both the housing boom and the finance boom that enabled it. Irrational exuberance indeed.

Expect next year to be one of "corrections" - when debt catches up with borrowers and the price of assets, especially housing, drops. The party is over. Get ready for the hangover.

January 2006 peak? 2006?

Pace of Decline In Home Prices Sets a Record

By JAMES R. HAGERTY and KELLY EVANS

December 26, 2007

Wall Street Journal

Home prices in 10 major metropolitan areas in October were down 6.7% from a year earlier, according to the S&P/Case-Shiller home-price indexes, released Wednesday by credit-rating firm Standard & Poor's. That exceeded the previous record year-to-year decline of 6.3% in April 1991, when the economy was emerging from a recession.

The silver lining behind the latest home-price data is that they signal the market is making what most economists see as a necessary adjustment, dragging home prices back into closer alignment with Americans' ability to pay. The market is working its way "back to reality," says David Seiders, chief economist of the National Association of Home Builders. He thinks house prices will bottom out by early 2009.

Some other economists say that might not happen before 2010. "The housing shock is only about halfway over, and housing prices will continue to fall well into 2009," says Lehman Brothers economist Michelle Meyer.

The boom more than doubled prices in many populous areas near the coasts. ... Home sales began to slow in mid-2005. Prices leveled off and then started declining in 2006. Over the past year, mortgage defaults have soared, leading to rapid growth in foreclosures.

Bette Zerba, a Realtor with Re/Max in Phoenix, says local residents trying to sell their homes can't compete with foreclosed homes selling for $50,000 to $100,000 less than their own. "The sellers now are having to reduce their prices by 20% to 30% to compete," she said.

But the recovery of the housing market is a gradual process. That's partly because the boom left prices so far out of whack with incomes. As measured by the S&P/Case-Shiller national index, home prices jumped 74% in the six years through 2006. During the same period, U.S. median household income rose 15%. (Neither figure is adjusted for inflation.) That made housing unaffordable for many Americans.