I agree with most of what you are saying renterclint. Something you just posted just struck me.

“but what if 90% of the home-owners actually have the ability adjust their personal budgets to hang on and keep their homes for the long haul?”

I notice we talk a lot about NOD’s, foreclosures, REO’s but we don’t spend much time talking about that next category of homeowner that will be able to make it barely. IMO if 90% of the homeowners can adjust their personal budgets to keep their homes it will still have an overall negative impact on the local economy. As these loans reset higher people will have the choice to walk away with blemished credit or hold on with greatly reduced discretionary income. That means no vacations, no new flat screen TV, no new luxury car etc. Even if they hold on the economy will still suffer. The key to determine price declines is demand. If we slip into recession then the possibilities of the large price drops are greater. I guess my point is that we face that risk if these people hold on or not.