Paul Krugman asks how far is down?
"So I come down to the view that the price-rental ratio will have to move most if not all the way back to historical norms. And that’s a long, long way down."
My assessment: it all depends on where you are. It's not as simple as zoned versus flat or coast vs. middle. This picture is geographically complex.
The Midwest will feel it badly. Speculative markets with little in the way of a "real economy" have an even longer way to the bottom - South Florida and Las Vegas are headed a long, long way down. That decline is just beginning to start because owners and investors haven't quite woken up to the new reality - sooner or later they will. Suburban markets are also in for a long tumble.
The places that will hold up best are urban markets where supply is limited in major creative/ super-star centers - largely as a result of global demand for those properties. NYC - that is Manhattan - will hold up best, but San Fran, urban DC, urban Boston, Seattle and the like will weather the storm better than most predict.
One thing that is likely to come out of this, as Clive Crook and Tim Hartford are on to, is the reversal of the long shift toward homeownership. It will become clearer and clearer to individuals how inflexible home-ownership is especially during downturns in the market. Leasing will start to comeback, not just among the working poor and middle class; it's resurgence will be led in luxury markets by the reasonably well-to-do, who will not want to get caught in this kind of bind again. And with the market stuck in the pits, they'll have a plethora of great rentals to choose from.