savings which were used for the deposit & when prices drop 20% the deposit may be wiped out. In effect selling means leaving the market not trading down -- while owners can service a mortgage they are likely to be very reluctant to return to a rental sector where conversely prices are rising. In London, part of the reason prices are stubbornly high is that many Middle Eastern buyers see a property in the capital as a safe financial and political bet and the majority of purchases are cash rather than mortgage so are unaffected by credit squeezes. In urban Spain, the story is similar, prices are still stubbornly high. I thinks this partially happens because many have invested all they had in a flat, and for them this is all they have for the rest of their lives, thus even if they can barely subsist, they still have much hopes that their flat will increase the price again in mid/long term. Amazingly we have 5-6 million empty flats in Spain. Tax to empty flats, anyone? Almost zero interest rates have clearly helped the UK housing market, particularly for those lucky chaps (and chapettes) with tracker -x% rates (which they would be rolling off last year/this year). The equivalent in the US would be the shadow inventory caused by people not paying and banks not wanting to foreclose. At 5% base rates things will be quite different. Surely a lot of people (implicitly) price houses not in notional terms but