Note that the option ARM crunch (see previous post) has the potential to make the housing-price landing a good deal harder.
Usually, when house prices go down, sellers pull back; you could describe this as speculative holding or as loss aversion, but either way transaction volume drops because homeowners don’t want to sell their places for less than they think them to be worth.
But people who can’t make their suddenly “adjusted” option-ARM payments and don’t have any equity to refinance may have no alternative to a distress sale except foreclosure, and the banks aren’t going to want to sit on piles of houses either. So we might see the sort of “selling climax” that characterizes the end of a stock-market dive.
The difference is that big institutions don’t generally buy individual houses as investments, so it’s hard for big pools of speculative money to come in if a selling panic leaves houses underpriced compared to some external standard of value such as the capitalized value of the rent. Being ready to step up and buy in the face of that sort of crisis is an excellent way to get either rich or broke in a hurry.