From the "You can’t say you weren’t warned department":

I ran across this September 2005 article by Les Christie article on CNN Money entitled Housing Prices Can Go Down.  I rarely use articles of this vintage, but this one has material worth revisiting:

"I think Americans are not well aware that many markets are risky," says Ingo Winzer, president of Local Market Monitor, which sells real-estate market analysis to corporate and consumer clients.

Those investors should realize that price reversals do happen, even if only locally rather than nation-wide. A look at the not so distant past reveals numerous examples of cities that went through housing busts — followed by years of falling prices. Some have never fully recovered.

Some examples Christie used:

Take Los Angeles, where real estate has been turbocharged for nearly 10 years. But the early 1990s were a different story; the average house price in L.A. dropped from $222,200 in 1990 to $176,300 in 1996, a loss of 20.7 percent.

Furthermore, those are nominal prices, not real values. To calculate the loss more realistically you would have to figure in the cost of inflation: $222,200 in 1990 would have been worth $266,700 in 1996 dollars, which means the actual loss for homeowners buying in 1990 and selling in 1996 was closer to 34 percent.

Not exactly the Nasdaq meltdown for investors, but getting closer.

But that’s L.A., where the aerospace- and film and television production-based economy can be a bit volatile. What about cities in more traditional areas? How did things play out in Peoria, Ill. for instance?

Not well, not in the early 1980s at least. Peoria experienced real-estate price drops amounting to more than 15 percent tied, in part, to strikes and lay-offs at Caterpillar, the city’s biggest employer. In 1981, the average home there sold for $60,800. By 1985, that had dipped to $51,400.

"Oil patch" cities, suffered even sharper declines. In Oklahoma City prices plummeted 26 percent from 1983 to 1988. It took 15 years for prices there to return to nominal 1983 levels.

Houston home prices fell 22 percent from $111,000 to $86,800, and also took 15 years to rebound.

Counting inflation, the average Houston home, which cost just $159,700 in 2004, is actually worth less now than it was 22 years ago. When, adjusted for inflation, a home cost about $219,000 in 1983. In Oklahoma City, the inflation-adjusted price in 1983 was $196,600. Today, it’s just $135,100.

While real estate pundits try to asuage buyer"s fears with reassurances that nationally prices have not fallen on a year-over-year basis, it’s important to remember that all of us live in local markets.  And as David Lereah likes to remind us, what happens to us locally is what affects us most.