Why the threat of a free fall is growing

The BusinessWeek cover story The Home Price Abyss: Why the threat of a free fall is growing. is very interesting. The core argument is that price declines could potentially feed on themselves. Big price declines make people unable to keep paying their mortgages (because their ARMs are resetting and the banks won’t refinance) or unwilling to keep paying their mortgages (because they see no point in throwing good money after bad). That drives up the foreclosure rate, which drives the prices of neighboring homes, adding to the downward spiral.We’re already seeing this happening in some of the markets with the worst price declines such as southern California, Nevada, Arizona, and southern Florida. The question is whether it could spread to more areas and become a national problem. One person which was quote in the story says that the taboo on walking away from your home and leaving the keys behind could be diminishing. He says that in commercial real estate it’s business as usual.

We would like to know what Banksit readers think about the idea of walking out on a mortgage.