That is what has occurred across most of New Zealand, even as levels remain among the least affordable in the world.
This is no comfort to those who bought first homes through the peak. Some are heading towards "negative equity", where the mortgage is bigger than the value of the house.
As interest rates rose from an average of about 2.5% two years ago to about 6.5% today, it is easy to see why demand has been knocked for six. Changes in tax rules for landlords have curtailed enthusiasm from that quarter.
As well, it has been disconcerting for everyone who felt richer because their home increased in value so much.
Ownership rates have declined steadily for decades before steepening through the boom.
Unaffordable housing causes long-term damage to the country’s social fabric. Homeowners are more likely to have positive stakes in their communities. Homeownership is a force for stability and firm foundations.
House prices have fallen 17.5% since the November 2021 peak, according to Real Estate Institute figures released late last week. Prices are down about a quarter if an inflation component is added.
Yet, prices still need to fall much more before they become at all affordable in most areas. While the April median house price of $780,000 was well down from the $925,000 height, it is still well above the first Covid lockdown figure of $665,000 (March 2020). That itself was a record.
The house-price-to-income affordability measure still makes dismal reading; 7.2 times nationally, 8.9 for Auckland and about that for Queenstown Lakes.
A good level was traditionally thought to be a three times multiple. It is a very long time since New Zealand was there.
More New Zealanders also need to become accustomed to more intensive housing and to apartment living in the biggest cities and Queenstown for both affordable and practical reasons.
The present building boom is coming off the boil, even as a housing shortage persists in many places. If second-hand houses are cheaper, there is less incentive to build new.
The orderly retreat of house prices has been so far so good, except for those who bought at the peak. Despite the steep rises in interest rates, mortgagee sales remain rare because employment is high.
A long period of stable prices would now help so the country can edge towards better affordability without deleterious side effects.
It is a shame progress cannot take place faster. But far too much of the economy for years has been built on houses. That is no way to create a productive and successful future and has created a serious vulnerability.
The politicians, meanwhile, obfuscate. Even at the peak, then Prime Minister Jacinda Ardern would not specifically say house prices should fall, even though it was clear they needed to. Homeowners are voters and no-one wants to become poorer.
What happens next is, as usual, unpredictable. The expected recession and more homeowners coming off low fixed-interest rates could further suppress prices.
On the other hand, unemployment rates are extraordinarily low, some people are enjoying substantial wage rises and inflation is a wild card. Labour has given up on much of its tight immigration policy, and arrivals outnumbered departures in the year to March by about 65,000. That is a lot of additional people.
It has become ever clearer that the post-Covid monetary stimulus was far too vigorous and for too long. The impact on both inflation and house prices has been detrimental.
The hangover will be with us for a long time.
