There are many factors which led to the falling of home prices. It's mostly supply and demand.  Because of people lossing their jobs, adjustable rate mortgages, foreclosures, etc, the market was flooded with houses people needed to sell.  Not as many people were buying so the prices dropped to meet the demand. 

The opposite was true in the mid 2000's.  There was such a demand for housing and the government was pushing mortgage companies to loan money to anyone that wanted to buy a house, even if they could not really afford one, that the prices rose at a abnormal rate.  The chart below shows the unsustainable growth.  We are now in a market correction which is really only bringing prices back to where they should have been.