I showed a house to a couple today – they might buy it, they might not, but here’s the deal: I know what the builder will accept (and what he says he’ll accept is probably still higher than what he’ll get). Even assuming that he gets his price, there’s an identical house on the same street, built by the same builder, that went for 25% more 18 months ago. The second this new house sells and therefore sets the new value for this street, that earlier buyer is going to see every penny of his equity disappear. Even if he keeps his job and can stay current on his mortgage, it’s bound to get discouraging to be paying off a loan on an asset that’s worth less than the debt. Of course, car buyers got used to that proposition; I suppose home buyers will have to, too. Or perhaps they’ll rent, instead of buy.