What if Prices Dropped to Fundamental Values?

We have speculated a great deal on this board about the future of home prices in our area. The arguments all boil down to a simple conjecture: will prices fall to back to their fundamental values, or are prices going to remain permanently detached and inflated? I make no attempt to answer that question here. The chart link below is a graphical representation of what it would look like if home prices fall back to their fundamental valuations in Orange County.



Below is a link to the excel file I used. It is a bit messy, but experienced users can probably navigate it.

Orange County Median Price Projections Worksheet
BTW, I was thinking about the current state of the market, and Wile E. Coyote came to mind: An allegory for our times. The greedy FB’s chasing their fortunes leading to their destruction. I found it particularly poignant the moment of realization when Wile E discovers he has a serious problem.

2013 update