The nation’s turbocharged housing market is certainly slowing, prognosticators say, but most voices associated with the industry say the slowdown should be gradual and the landing “soft.” But some outside observers, with less investment in the status quo, see home prices going off a cliff.

Last week, the Harvard Joint Center for Housing Studies released its annual report on the state of the nation’s housing. While the report said the slowdown in construction should be moderate, its authors predicted that for the first time in six years home prices would dip during the next 12 months. That dip is likely to be moderate also, the report concludes.

“Fortunately, sharp price declines of 5% or more seldom occur in the absence of severe overbuilding, dramatic employment, or a combination of the two,” the study concludes.

But at the conference where the Harvard Study was unveiled, its principal author, Eric Belsky, allowed that if the economy suffers greater-than-expected job loss, America could be on the cusp of a housing recession. Apart from that caveat, though, Mr. Belsky adhered to the soft landing view, which has been backed by Federal Reserve Chairman Ben Bernanke, the National Association of Realtors, and most of the nation’s leading home building firms.

Yesterday morning, economists at UCLA’s Anderson School of Management, released their forecast for the California economy, home to some of the nation’s hottest markets, agreeing with the Harvard study as far as California goes. Like Mr. Belsky, Anderson’s Ryan Ratcliff says a sharp drop in home prices can only occur if there are severe job losses, which, they say, is unlikely.

Despite what appeared to be a mania in the housing markets, much of the recent surge in prices could readily be explained by declining mortgage rates, economists say. As rates fell, the same salary could afford a much more expensive home than it could before.

But signs of decline are here already. Permits for construction have been declining. The National Association of Home Builders/Wells Fargo’s index of builder confidence is at its lowest mark since April 1995. Inventories of homes are at record levels, and reports that homes are taking much longer to sell than a year or two ago are everywhere. Builders like Hovnanian Enterprises Inc. and Toll Brothers Inc. have cut their forecasts, and their share prices have fallen dramatically.

The greater skepticism comes from observations of home buyers, whose actions have become unmoored from economics. During the last two years, home prices have risen far more than could be explained by interest rate drops, making homes less affordable nationwide, and much less affordable in places such as Washington, D.C., Los Angeles, and New York.

Not satisfied with lower rates, many buyers have used so-called exotic mortgages to reduce their payments. For some buyers, especially those who plan to sell their homes relatively quickly, mortgage products such as interest-only loans or hybrid adjustable rate mortgages (aka ARMS, where a low initial rate in reset after three or five years) make perfect sense.

But some observers, such as Peter Schiff, CEO and chief global strategist of Euro Pacific Capital, and a longtime housing market bear, says buyers have a different mentality than they have in years past, and that mentality will be easily shaken once prices start to drop even a little.

A large and increasing percentage of home buyers are investors – including many who don’t admit that their mortgage applications, Mr. Schiff claims. When these buyers, many of whom stretched to buy their homes by using ARMs and other non-traditional mortgages, certain their prices would continue to rise, face a setback, they will rush to sell. That setback could come in the form of a mortgage adjustment or a job loss.

But when it happens, they will sell at lower prices, and others will follow them to the door. While lower rate fueled the boom, higher rates won’t cause a crash, realtors and mortgage bankers say. Prices will stay the same. Mr. Schiff, though, isn’t buying it. “How can prices possibly stay the same?” he asks.