The thrust of BG’s argument is that there is enough stability in the SD market due to baby-boomer participation. Since they bought when house prices were lower in real terms, and there are enough of them, the housing market is little affected by being over-valued. This is evidenced by their indifference to the need to sell, down-size, move, low-ball offers, and so on. But I’m not so sure the reasons they are not selling are all to do with “I’m alright Jack” as some just desperately hanging onto perceived wealth due to fear of not having enough to retire on. The question faced by many is how exactly do you capture this wealth, and the answer is the options are limited. So when/if alternative investments become available that story line may change for local buyers, and foreign investors who have comprised as much as 50% of recent sales in many metropolitan areas. On top off all the other points raised about lower sales, increasing inventory, higher anticipated rates, over-valuation, the number of homes that are in some stage of foreclosure in SD is 2,375, which is about the same number of homes that are for sale. My guess is that distressed homes are still at historically high levels, and will continue to play a role for some time yet.

The most logical way to look at the question of whether home prices will contract is to look at what pushed them up, and what happens when those factors are no longer there. The exact reverse trend should follow.