Debt Deflation

[Seth Ackerman]

Michael Pollak wrote:

> I don't think that's right, because the 20% barrier seems to be phrased in
> terms of initial purchase price rather than beginning-of-the-boom market
> price.  So in a bust, long-term residents whose homes had steadily
> appreciated could sell at a price that would be higher than what they paid
> and still be more than 20% lower than the start of the boom.  And if I
> understand Brad's paraphrase of Shilller correctly, their bottom price
> would be 20% lower than they originally paid say 20 years ago -- which
> would be a lot lower than 20% below the start of the bubble.

Hmm. I thought he meant people won't sell for less than 20% below the
*maximum* they *thought* they'd get. In other words, if they're told at the
peak of the boom that the house is worth $200,000, they'll never sell for
less than $160,000, because they'll always have that magical $200k figure in
their heads.

Seth