"Could it be a 5 percent drop in prices? Could it be 10 percent?"

A bit out of the target area of this blog, but a good piece nonetheless. From the Washington Post:

After 5 Years of Growth, Home Prices Drop

In what may be the most telling sign yet that the real estate market here has shifted downward, median prices of homes in several parts of the Washington area have declined when compared with the same time last year.

In Loudoun County, for example, the median price of homes sold dropped 1.2 percent last month, compared with June 2005, according to Metropolitan Regional Information Systems Inc., the area's multiple listing service. In Fairfax County, prices fell by half a percent in May and a tenth of a percent in June. And in the District, the decrease was 0.8 percent in March and 1.2 percent in May, compared with the same months last year, even though prices in the District in June were higher than the year before. The median is the point at which half of the houses cost less and the rest more.

The declines are small, and certainly not universal. Prices continue to rise in some areas, most notably Prince George's County, where houses are still relatively inexpensive. But the drops are significant because they mark the first time in half a decade that home prices have fallen in a 12-month span, illustrating just how much the real estate landscape has changed after five years of double-digit growth in home prices.
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Economists are split. One view is that any declines will be insignificant or temporary because of job growth and the strength of the local economy.

"Could it be a 5 percent drop in prices? Could it be 10 percent? Whatever it is, it will be short-lived, because demand is right there on the sidelines," said David A. Lereah, chief economist of the National Association of Realtors.

But others see a steeper, prolonged downturn in prices because of overbuilding in some areas, speculative buying and a run-up in prices that has outpaced affordability. Prices, they added, have actually declined more than the multiple-listing service statistics indicate because sellers have been offering such incentives as help with closing costs.

Peter Morici, an economist at the University of Maryland, said prices could drop 10 percent by the end of the year, and perhaps by 20 percent "by the time it's all over."
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Zandi sees Washington area home prices declining over the next six to 12 months by an average of 10 percent, with the condo market experiencing larger price drops. The good economy, he said, is "not enough to save the market from this housing correction."
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The possibility of falling prices seems to have made many home-shoppers hold off on buying, despite rising interest rates. After all, even a minor correction could mean that houses cost tens of thousands less. For home sellers, that means much hand-wringing as they start to slash prices below what neighbors got just a year ago.