Last week (while I was away on vacation) the OFHEO released their quarterly estimates of housing prices in the US. While it isn't a perfect measure of house prices, I think it's a pretty good one. Since it tries to track what happens to the price of the same house over time as it is bought and sold, it avoids some of the problems of prices measured by the median sales price. Furthermore, it is separately calculated for each Metropolitan Statistical Area (MSA), which provides a lot of texture to our analyses of the housing market.
At any rate, here's a picture of what the most recent data shows for some of the US's largest coastal cities - the ones the enjoyed the biggest price appreciations during the period 2000-05.
In a rather remarkable display of synchronization, all of these cities are showing rapidly falling rates of price appreciation. Boston, San Diego, and San Francisco are now registering negative year-over-year real price changes, and it seems likely that in three months we'll be able to add New York, L.A., and Washington DC to that list. Note that the states that contain these particular MSAs account for about 40% of the population of the US.
On the other hand, there is another 60% of the US that lives in interior states that did not go through the most recent big price appreciation. Unfortunately, it seems that house prices are leveling off - and in some cases, falling - in those places, too.
And as for the longer view: the last picture shows the 2-year price change (to better smooth out some quarterly variability) in major coastal cities of the US over the past twenty years.
Based on past experience, it seems very reasonable to think that we're only in the very early stages of a many-year-long price correction. Don't think about the housing market turning around in 6 months, or even in a year or two; I'd suggest that you think about it gradually falling and leveling off over the course of the next 5-7 years or so. So be patient.