I think – based more on assumption than personal research – that many of those sellers are simply UNABLE to lower their price. If you bought a house for $750k and put 5% (37.5k)down, even if the market stayed flat you'd still owe at least $7,500 to get out from under it (assuming 6% commission). Now, if you put down < 5%, took out a HELOC, add in the other seller's costs, or have the property drop by a percent or two, pretty soon you've got to come up with a lot of "right now" cash to pay for it.
That, I suspect, is the reason for the inventory build-up. That's also why I think this will go on for some time… those that can sell (have equity) might go ahead and do so, but think that many others might well end up turning theirs into rentals to avoid bankruptcy. At least that way they could write it off and wait for better times (don't hold your breath).
What I don't know – is how short-sells will factor in. IF you short-sell, I assume that shows on your credit rating, no? Is that significantly different than declaring bankruptcy in terms of final result?
