I agree that the must sell transactions will determine the market. Where it gets fuzzy for me is whether people will be able to find nice homes in nice areas for sale at those prices. I currently believe the vast majority of owners will sit tight and while prices will be much lower it will be increasingly difficult to find a real gem to live in. My house might drop to $400,000 but it doesnt matter to me because it wont be for sale. If it did and there was a home I wanted to move up to for $600,000 I would keep my old one and with a fixed cost of about $2500/month could easily cover my carrying costs.
Also while 2007 volume looks significantly lower than 2006 countywide, it is relatively flat in the North County Coastal market. If you throw out all the builder sales that were in the MLS in 2006 but not this year, resales could even be up this year.
