Housing bubble, U.S. and Arizona

Here's a nice chart from Yale economist Robert Shiller showing U.S. housing prices back to 1890. What will the regression to the mean look like over the next few years?

On Wednesday Moody's issued a widely-covered report on housing prices with predicted price declines by region. Here are their predictions for Arizona cities:

                            Peak-to-Trough              Peak            Trough
                   % House Price Decline      Year/Quarter      Year/Quarter

  Tucson, AZ                      -13.4               06:1              08:2
  Phoenix, AZ                      -9.3               06:1              08:2
  Prescott, AZ                     -2.0               06:1              08:2

I think that their predicted 9.3% decline between first quarter of 2006 and second quarter of 2008 for Phoenix is wildly optimistic--it wouldn't surprise me if we saw that level of decline by the end of this year or first quarter of next year. It depends on whether Phoenix continues to have rapid population growth, which in turn depends on job growth (especially outside of real estate-related jobs, which will be declining).