Check out this commentary from Tom Graff:

I’ve argued that home prices are sticky on the downside, because people are very reluctant to put their home up for sale at a loss. In many cases, people just can’t put their home up for sale at a loss. Let’s say I buy a $200,000 house with 10% down. The house declines in value by 5%. Now I’ve invested $20,000 and have a $10,000 loss. I want to buy a bigger home for $300,000. I have to pay off a $180,000 loan with sale proceeds of $190,000. In order for me to put 10% down again, I’ve got to come up with $20,000 in cash. If I’m like most Americans, I haven’t saved very much, so coming up with the cash would be difficult.

So what do I do? I just stay in my current house. Ride out the housing downturn.

If people delay their decision to trade up in houses, the effect is to lower supply. I think this creates a floor to how far home prices can fall in general. Maybe not so much in a given area, particularly those where investor speculation was rampant, but nationwide. This is why I’m not terribly bearish on housing, and why I don’t think housing will compel the Fed to cut rates early in 2007.

That is an interesting perspective.? As someone who has gone through the process of selling a home, I know that is exactly how I felt.? A loss wasn’t acceptable and I certainly couldn’t afford to make up any shortfalls.? What makes something like +4% a year, normally a modest number, attractive is the leverage provided by house values.? But that’s not so good when it turns negative.? But the one thing that makes it different from a stock or other investment is that you can live in it.? As long as you can afford it, you don’t have to sell it.? But the one thing this thesis leaves out is the affordability factor.? What if you can’t afford it?? It becomes like a margin call.? Still, I like the common sense of this point of view.