What happens to the new “2005” development when the prices drop below purchase prices? can be complicated. IMHO It depends on who and how the majority of the houses were purchased.
The homes purchased with large down payments and conventional financing should not be impacted unless the owner is forced to move by other factors. The price drop just erodes equity taken from a previous home. The mortgage is still below current lower price.
Homes purchase with conventional financing by families that do not want to move, nor harm their credit ratings will likewise stay off the market, and the owners will just wait for the market to catch up – at least for the first few years. Even if the amount owed exceeds the current value of the home.
The frenetic buyer who just had to get in on Real Estate and used “creative financing” to make the purchase will run like a rabbit. As soon as the market drops significantly below what he owes, or the financing ballons this buyer will flee the neighborhood. Although this home owner will drive prices down quickly, he will not impact the other two types of home owners they will stay put.
The real impact on a specific area will depend on the mix of these, and other types of buyers.
