All the action occurs on the margins, and so far the margins aren’t big enough to dominate the rest of the market. The size of those margins will undoubtably increase, but how big they’ll get and how much damage to the buyer psychology they create is really tough to say.
We’re in uncharted territory at this point – nobody can know to what degree these various pieces will interact with respect to a declining market.
The conventional wisdom based on spikes in the past is that the downside of a spike is a little more moderate in pace than the upside of that spike. This last upside was very steep, so if the past repeats we can guess the downside will be steeper than average before it mellows out to that more moderate bleed.
Let’s say that must-sell transactions become 75% of the closed sales. We would still have to have buyers for each of those sales – buyers who think that now is a good time to buy. The cruel irony is that during the same time sellers are being punished the buyers are (finally) figuring out they don’t want to be the greater fool. This leads to more punishment for the sellers.
I’m still in the 10-12% camp as far as the next 12 months are concerned. For a few market segments in SD that would get us almost halfway to the original -50% forecasts. After that, the number of closed foreclosure sales and the number of REO listings may comprise a big enough margin to take over the driver’s seat.
No matter what, it’s still going to take years before this is over.