If a house is 80% over valued then it's "true value" is really 20%, for example if a 1m house is "truly valued", it's real value is 200k
That's not correct. Do a simple check, according to your calcs the true value is 200k and current value is $1m.
That puts current value 400% higher than where it should be not 80%
Prices being 80% overvalued is not the same as th3 price should be 20% of what it currently is