bagel shop in Carmel Valley say, “Yeah, maybe housing prices will level off, but people NEVER sell for less than what they paid!”

ahem, she’s basically right. People don’t sell for less than what they paid. Only when absolutely forced to does the average person do so. Even most investors won’t. And in the end, the majority of SD buyers are still regular people that will hold until the bitter end and they can get out for what they paid for it. Otherwise, the bank is going to have to take it back.

Prices may fall, they may collapse, but liquidity will go with it. Frankly, given how illiquid housing is even in a normal market, I think the non-liquidity once the contraction gets going is going to make it look like the Gobi.