This long term chart of real estate prices (via VisualizingEconomics) is a great example of how looking at a longer data series can give better perspective than the news cycle driven coverage of the last several years.
Conclusions we might take from this:
1. We are getting closer to a real and nominal price bottom. Note these are national prices – many local markets have probably bottomed and are in recovery.
2. Prices do have further to fall, but the major declines are probably over for most markets.
3. Real estate prices (despite the 30-40% drop in the last 5 years) are still in a long term uptrend (nominally) and on par with inflation in real terms.
4. With interest rates still at or near 40 year lows but beginning to rise, costs will likely increase for new homeowners regardless of the direction of house prices over the next 2-3 years.
5. Unless renting is MUCH cheaper, homes are better (even very good) at “storing” the value you would otherwise pay in rent, but are not ‘investments’ in the return-maximizing sense.
*Caveat: This all assumes, of course, that there are not major structural changes imposed on the residential finance system which may cause prices to overshoot to the down side. Thankfully, some of the truly harebrained ideas like a “return” to a mandatory 20% down payment which never existed in the first place (looking at you Steve Forbes) will never see the light of day.