I've seen many, many, articles on the unraveling housing bubble, but few that give readers an idea of just how much and how quickly prices have come down. So let's take my own home market, the D.C. metro area, which of late is one of the worst performing regional markets. According to the Housing Tracker website, at the top of the market, in August '05, the asking price for the 75th percentile home was 700K. Currently, two years later, the asking price is 579K, or about a 17% decline. (Housing Tracker also has a site that it claims has "better" data, whatever that means, but the data there doesn't go back far enough, so I'll stick with an apples to apples comparison). Also, two years ago the average house was selling at asking price. Now, from what I've seen it's more like an average 5% discount. Two years ago, houses were selling "as-is." Now, buyers come with a laundry list of requests, which, combined with some extra sprucing to sell, perhaps adds another 1% loss to the seller. Finally, one has to factor in 6% or so inflation. So, at the higher end of the market, the price of the average D.C.-area home has fallen almost 30% in real terms in two years.
Then consider that the D.C. and inner suburb (Arlington, Bethesda, parts of Alexandria and Falls Church) markets have been much healthier than the general suburban (Rockville, Fairfax, etc) market, which have in turn been much healthier than the outer suburban market, and it looks like parts of the market have declined more like 40% in real terms. The figures are only slightly better at the 50th and 25th percentiles. Of course, it's possible that these figures are skewed if the mix of homes for sale has changed substantially, but I doubt that this would make more than a 5% difference, given that the 25th percentile asking price is also down substantially.
It's important to keep in mind that very few homeowners bought in the Summer of '05, and most area homeowners still have substantial equity from rising prices, if (and this is a big if), they didn't aggressively refinance their house. [When I was still in the buying market, I bid on several homes that were overpriced, but had been sitting on the market for months. Turns out that the owners, who bought before the boom, couldn't "afford" to sell for less than asking, because they no equity in their house, had no savings, and needed to cover their mortgage (I was sorely tempted to tell an agent for one such couple that perhaps they should sell their 2007 50K SUV!)] Even those who bought near the top aren't doing too badly if they locked in a historically low interest rate (I know someone who got a 4.75% 30 year mortgage with virtually no closing costs).
Anyway, when you see such stark figures, you can understand why builder stocks are plummeting, and why the mortgage market is in such turmoil. Homeowners who want to refinance when their adjustable rates adjust won't be able to, and many others--especially those with no-money-down loans--won't want to, and will instead walk away from substantial losses on their homes.
UPDATE: A couple of additional caveats: (1) overpriced homes are sitting on the market, while market-priced homes are selling, which could skew the asking prices higher; and (2) On the other hand, in a declining market, the current asking prices may bear little relationship to the ultimate asking price (e.g., the record of our transaction will show that we paid 100% of asking price, but only after the seller dropped his asking price 200K), so the asking prices may skew the data the other way.