There's a great graph that the New York Times had done reflecting home values adjusted for inflation going back 100 years. It shows the booms and the busts, such as the 35% loss of home values in the Great Depression, as well as the booms in 1970s and 1980s. The one constant is that home prices always return to about 110% of historical norm.
Home Values thru 2006
The current credit bubble and housing boom started with a steep increase in home values in 1997, not long after government loosening of credit and the fed pressures to lower interest rates. Starting in 1997, homes increased from 110% of historical value to about 205% of value in 2006. Then the bubble started to burst. Since 2006, values have dropped 40% (value loss plus inflation loss) to about 155% of the historical norm. See the curve now:
Home Values thru Today
The downward slope of the curve is very steep right now and could do one of three things. It could start to level out, continue to plummet to the norm, or in the case of entering a depression, values drop well below the historical norm before it bottoms out. Home values across America are losing about 1% of value a month, on top of the value being lost due to inflation that is beginning to increase rapidly.
If you are hoping things will turn around soon and are making financial decisions based on that hope, this is information you need to be aware of.