In the late 1990s, economists, real-estate analysts, and others were puzzled by the housing market. House prices kept going up, confounding everyone’s forecasts. Ten years later, we’re on the other side of that hill: Prices are going down, but nobody seems to know how far they will descend.

Since home prices are a moving target at the moment, up-to-date price data is hard to come by. But I have been hearing routinely that appraisers now use 2004 prices as their benchmarks; just a few months ago, they were using 2005 prices. A 2004 price would mean that after 13 years of increases, we’ve slipped back about three years. That means if you bought your home before 2004, you are still ahead of the game. But that’s only if the market doesn’t fall any farther—and most forecasts say it will.

The number of houses sold is a clearer indicator of the market’s health, and that figure is not encouraging. Sales volume in the Chicago area was down 57 percent in 2007 from 2006 (approximately 89,000 homes sold here in 2007, down from about 212,000 the year before, according to data from the Multiple Listing Service of Northern Illinois). But like prices, the sales volume figures may only be falling back to something closer to normalcy. Suzanne Cannon, the head of DePaul University’s Real Estate Center, has recently been investigating sales volumes in the city; she has found that the pace of sales in 2007 is about the same as the pace in 2002. After 2002, she says, “we had this big run-up in sales until 2005.”

Virtually everyone in the real-estate industry—even those who just a few months ago were putting a sunny spin on things—agrees that the market will continue to head downward in 2008, but the estimates vary as to just how far. Here is a sampling of recent opinions:

One certainty seems to emerge from this range of opinions: Don’t expect any good news in the first half of 2008. Beyond that, it’s hard to say what will happen. “I don’t see anything that tells me whether [we will reach bottom] in 2008 or 2009,” says DePaul’s Cannon. “It’s impossible right now to say.”

Here are a few looming questions that could influence how things turn out:

  • Will the dawn of the traditional spring selling season, which most real-estate agents now believe starts immediately after the Super Bowl, bring out enough bargain-hunting buyers to eat up the enormous backlog of unsold homes?  In late December, there was enough residential property listed for sale in the Chicago area to equal at least 29 weeks of sales.
  • Will the foreclosure numbers mushroom the way analysts have been predicting? A recent USA Today article reported that Illinois has the country’s fourth-highest rate of adjustable rate mortgages: 4.9 percent. Compared to California’s 17.3 percent and Florida’s 12.3 percent, that’s a relatively small number—but it still means that one in twenty Illinois homeowners who have a mortgage face a potentially costly spike in their house payments in the next few years. If the teetering economy drops into recession, how many of those people will be forced out of their homes? Add those residences to the excess inventory, and the time needed for the market to recover grows even longer.
  • Will those people who must sell wake up to the reality of today’s market? Nowadays, at least two real-estate agents a week say something to me along the lines of: “My clients think I got a ridiculously low sale price for them,” or “I would have priced this house at X, but my clients insisted on X plus $20,000.” Some sellers have figured out that right-pricing is crucial now; they have learned that it’s no longer a good idea to put a house on the market at an optimistically high price just to see if they can get that amount. (Hint: they can’t.)
  • How many people will opt to stay put—neither buying nor selling—until they see which way the presidential election is going to go?

The answers to those questions could give us all a clearer idea of just how much farther the market might fall before it hits bottom.