James Bednar performed exhaustive research using the New York Times online archives in his article Home Prices Do Fall  – he is also the webmaster of the Northern New Jersey Real Estate Bubble blog .
His premise is that housing prices can fall despite the mantra of NAR and others. The spread in the chart he created between median income and NJ housing prices seem to show that the market is approaching the same point at present that it was in the late 1980’s.
However, the argument can also be made that this is a one-dimensional viewpoint. Not that there isn’t a shift occuring in the housing market, clearly there is, but rather the extreme fate that has been suggested could be overstated.
I was an active appraiser during the late 1980’s and this is what I remember as big issues of the day post-October 1987 stock market crash:
Mortgage rates – the 30 year fixed was about 11.5% and rising.
Recession – the economy going into one of the worst recessions in recent history.
Foreclosures – were at far higher levels than we see today (although this is somewhat unfair since the lenders are more resistant to doing foreclosures today, preferring workouts and other alternatives which skews the historical data for comparison).
Employment levels were falling and inflation was higher than today.
Inventory – due to the 1986 tax laws, there was a flood of investor properties on the market that were no longer economically feasible to purchase and took about 7 years to absorb.
Specifically in Manhattan, the coop conversion boom and condo 421a tax abatements created an oversupply that was about 5x the inventory levels we see today.
It might be interesting to see the chart presented with the median income and sales price adjusted for inflation. This is great stuff and it will be interesting to see how this plays out.