If you thought the national housing market was gloomy before, check out this new theory from BusinessWeek: According to its latest housing installment, prices around the nation could fall 25 percent or more, returning them to pre-boom levels.

Here’s an excerpt:

While a 25% decline is unprecedented in modern times, some economists are beginning to talk about it. "We now see potential for another 25% to 30% downside over the next two years," says David A. Rosenberg, North American economist for Merrill Lynch, who until recently had expected a much smaller slide.

Shocking though it might seem, a decline of 25% from here would merely reverse the market's spectacular appreciation during the boom. It would put the national price level right back on its long-term growth trend line, a surprisingly modest 0.4% a year after inflation. There's a recent model for this kind of return to normalcy after the bursting of a financial bubble. The stock market decline that began in 2000 erased most of the gains of the boom of the second half of the 1990s, leaving investors with ordinary-sized returns.

South Sound real estate agents seem to think prices here will increase or remain the same in 2008, primarily because of the region’s strong job market and population growth projections. It’s certainly hard to imagine prices reversing to the point that we’d see an across-the-board return to 2003, when Pierce County’s median price for a house, exluding condos, was $178,500 – that would mean a 36.6 drop in prices. Pierce County’s 2007 median price for houses was $281,400, according to the Northwest Multiple Listing Service. (For some context, the median house price in 2007 increased year-over-year by 4.2 percent. When you add condos to the mix, appreciation was at 2.8 percent.)

Where do you think prices will head in 2008? Is the BusinessWeek theory so dire it’s hard to take seriously? Or do you think it’s possible such declines could reach the Northwest?

Even if you’re not interested in the story, I’d recommend one eye-catching piece of the BusinessWeek package – a slide show that takes you through more than a dozen metropolitan areas and shows how far prices would have to fall or rise to meet what homes were selling for in 2003. (Find the slide show, called "Housing Prices Shed Gains," to the right of the story.) It’s a good way to contrast what’s happening here – and could happen – to other areas around the country.