Some time ago I learned an interesting term: value discovery phase. It can be related to the valuation of any asset. It’s particularly applicable when values decrease. In the stock market the VDP can last just minutes: bad news is released about a corporation and the stock immediately looses value. The market can immediate reset its value. This was contrasted to the housing market. Obviously, when housing prices start to slide there is no immediate method to establish the VDP. It takes many months, but more likely years, the new price levels. There was a very similar but local real estate bust in Houston in the early 80's when the oil industry contracted significantly here. Real estate agent kept telling (for the obvious reason) buyers and sellers that market had bottomed out and was improving. In fact, it took at least 10 years for a noticeable improvement. But even with that, I knew one fellow, who bought in 1979, and even by 1994 his home had not recovered to the price he had paid originally.

Home sellers are stock in the same position as stock players: sell not and accept a lower return, or even a loss, or hang on to it and wait for recovery. If the home seller doesn't have to sell they'll likely wait it out. If they can't then they suffer the loss and move on. It's a hard choice. Back in 2000 I knew a fellow that owned Enron stock when it fell to $10/share. He said he wasn't going to sell it at a loss. He eventually sold it for $0.12/share. Difficult choices to be made for sure.