Why You're Paying Too Much for a House This Year (Still)
Schiller lays it out.
Even if there is a quick end to the recession, the housing market’s poor performance may linger. After the last home price boom, which ended about the time of the 1990-91 recession, home prices did not start moving upward, even incrementally, until 1997.
Neither that boom nor that recession were as extreme as what we had and where we're going. Schiller doesn't mention interest rates. The only reason home prices haven't gotten even worse (yes, it could have happened) is because Bernanke, Geithner, and Obama are mortgaging everyone's future by borrowing unholy amounts of money in order to manipulate the treasuries market to try and keep rates down.
That's recently stopped working. If rates go up, prices on those houses have to fall further, more quickly, in order for people to be able to make the same payments and get the same house.
Here's what different interest rates imply about the price of a home with the same monthly "affordability"