I think this is a good question. I used this argument a couple of times when powayseller was on her “60% drop” rampage.
I guess the two answers are:
1) Yes people sold houses for a lot of money, but many re-financed cash out. i.e. what was their equity? Keep in mind, spending has outpaced income recently, so there are a bunch of sellers who got out, but not necessarily with alot of money to play with.
2) For those who are sitting on some cash made from selling near the top, I would suspect their money won’t come into the game until very late.
I think this money will help mitigate the size of the price reductions to some extent, but won’t bring the recovery any faster. The market will flounder for a long time while that money sits on the side and waits. Still a long way to go before that money comes back to the game.
