“If 100% or 50% or even 25% of all real estate changed hands in a year, the distressed sellers would be only a small fraction of overall sales and would not have a big effect on prices. However, total sales in year, as a percentage of all housing, is quite small. Therefore, distressed sellers, as a percent of all sellers, can be quite large. This has a big downward effect on prices.”
I won’t make a direct comparison between the US Property market and Japan’s bubble of the 1980’s but the dynamic you described was what happened in Japan. The people that could make their payments stayed in their home which was a majority of the Japan’s RE market. But home prices fell for 16 years because the market is determined at the margins. I remember Rich debating a pro RE economist last year on a PBS station and the economist/Realtor made the same point when addressing the rapid rise of inventory. He pointed out that if you look at the total number of homes in San Diego only a small fraction are for sale. It’s a bogus argument.
