Your analysis has the ring of truth to it. Housing prices can be sticky, but when leverage is involved a small loss can turn into a big one with a few percentage points in the wrong direction. “Sticky” doesn’t mean “impervious”.
Do I need to point out that anyone who sees their home value drop has incentive-a-plenty to get out before their losses are magnified? I don’t doubt that households will shift and shuffle their finances to make the mortgage payment, more than any other expense. But there are limits to how long someone will swim in an undertow with an anchor around them.
1. If your I/O payment goes up 30% once full amortization kicks in (worse if interest rates are higher), and
2. Your house has depreciated in the past year or two, with no sign of a market turnaround,
You’ll be looking hard at that rent/buy ratio and considering a lifestyle change. If it means avoiding a five or low six-figure loss by acting quickly then a lot of sellers won’t mind having a landlord worry about the roof and plumbing problems. And if you have investment properties that look iffy, selling them is even less of an emotional issue.
