How bad is the drop in US home prices?

Today's Wall Street Journal leads with First American Core Logic's new report that one-quarter of American homes are "underwater" - worth less than their nominal owners owe the banks that financed their purchase - and warns this will lead to more and more foreclosures, as priced-out homeowners walk away or are chased off by bankers and their houses are "dumped into an already saturated market."

Not necessarily, says veteran Philadelphia bank economist Joel Naroff. He notes that people still pay their car loans, even though new-car loans tend to be "upside down [worth more than the cars] as soon as they drive off the lot." Similarly, people with "negative equity" in their homes aren't likely to "simply walk away from their loans" just because the mortgage, unchanged, is priced higher than the house, right now.

But, he adds, underwater-upside-down-negative-equity homeowners "are not likely to move unless they have to," because they'd have to pay to sell their homes. That means there's fewer people looking to trade up, which drags prices down. That can't change, til prices go up.