Many in the libertarian camp believe that the U.S. dollar is headed towards zero. Some of these same people also believe that real estate has yet to hit bottom and may stay down for many years to come. In fact, this isn't just a position by some libertarians, but also by many others in the investment world.
While they have been somewhat correct over the last few years and may be right for a few more, there is a limit as to how much they can be right. If you are arguing that the U.S. dollar will continue to go down, then it should favor hard assets, one of which is real estate.
The dollar has done poorly over the last decade. This is in relation to other currencies and this is with other currencies being devalued as well. The price of gold has gone up in terms of all of the major currencies, but it has gone up even more in terms of U.S. dollars. It should be noted though that there have been exceptions to this trend. In the fall of 2008, the dollar strengthened quite a bit due to the major downturn in the economy and the flight to safety (which for some reason, people still view the dollar as safe).
It is certainly possible for the U.S. dollar and real estate to both go down some more in the short-term. The reason for this odd circumstance is because of the previous huge bubble in housing. The prices in real estate went up so far and so fast that they are still trying to correct, even with the government's interventions. Real estate is not liquid like stocks. Therefore, it can take some time to clear the excess inventory. In addition, the government has been trying (without much success) to prop up real estate due to the major hits that banks would take if there were even more foreclosures and short-sales.
Long-term, let's say more than 5 years, this trend is unlikely to continue. The U.S. dollar will not continue to go down while real estate goes down too. Just to clarify, I am simply talking about real estate prices in nominal terms and not in real terms.
If the U.S. dollar goes down by 50% compared to other currencies in the next 5 years, then it would be 50% cheaper to buy a house for a foreigner if housing prices stayed the same. If housing prices continue to go down, then it would be even cheaper. And this isn't even accounting for the fact that the foreigner's currency probably experienced some depreciation of its own. At some point, housing will be a bargain that just cannot be ignored.
I expect that there is a strong likelihood that the dollar will strengthen again in the near future, especially with the problems in Europe and a likely default by Greece. Once the Fed goes ahead with QE3, then we may start to see the dollar fall again. At some point, when velocity picks up, there will be a rush away from U.S. dollars. People will be looking for hard assets. Since a house is a hard asset and everyone needs a place to live, it would not surprise me to see housing prices go up again in a few years, at least in nominal terms.