Take Crown Hill, which is way over valued. Most of the homes in there are still over $500k and many are nearly $700k. I am shocked, these homes have been on the market for months. What do the sellers think is going to happen?
Think of it from the perspective of a seller with a bubble-level, I/O or neg am purchase money mortgage.
There are two options:
1) sell for enough to pay off your mortgage; or
2) (short) sell for less than your mortgage and ruin your credit rating.
With option 2, it doesn’t matter whether you sell for 100k$ less than your mortgage or 200k$ less– your credit rating is ruined in either case. You have no incentive to actually sell before the price drops get more severe since your cost (i.e., your credit rating) is ruined no matter how much the bank loses. The only thing that saves you this cost is selling at bubble-level prices…
