It's long past time to talk about housing markets losing their sizzle. They've already begun to turn down in the most bubbly markets on the East and West coasts. Now we've arrived at the truly difficult part of any real estate boom-and-bust cycle – the time when prices hang in the balance. Will they go up any more, will they plateau or will they – collective shudder – go down?

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This uncertainty particularly worries those who have bought some investment property – say, a second home or condo – and are having trouble selling it. Is it time for them to face their inner fear that they might have to sell their property for less than what they originally paid? Worse yet, what if the property doesn't sell even then?

It happens to the best of families – relatives lose their shirts on real estate. In my own extended family, there's a perfect example. Let's call him Uncle Mike. Back in the early 1970s, he retired and used his nest egg to buy property on Hilton Head Island in South Carolina. One lot for himself and his wife, and four more pieces of land for his kids to build on someday. It's easy to see what a great investment that must have been. Hilton Head is such a success story. Wasn't he smart to get in at the very beginning?

Well, Uncle Mike was smart, but the investment was not. The developers of Hilton Head went bankrupt and took Uncle Mike down with them. He had to sell his home at a loss. He found no buyers for the four lots, and the bank took them over. (Some lucky buyers later scooped them up for a pittance.) Then he and his wife had to move into an apartment that was one-third the size of their previous home. His retirement ended up looking less like "Easy Street" and much more like "Difficult Drive." Once the real estate market shook out, Hilton Head recovered and went on to become the luxurious vacation spot it is, but Uncle Mike never recovered.

Ah, but most people who have bought investment properties recently didn't own in the 1970s. It's hard to be prepared for the history you don't know to repeat itself. In fact, ElliottWave.com points out that people choose to see only one side of the price equation. Even as sales of new homes drop and the number of homes on the market rise, still there is virtually no fear about home values:

A recent national survey of homeowners by the L.A. Times shows 'widespread faith in the real estate market.' The worst possible scenario, that prices would 'stay the same' over the next three years, was selected by just 5 percent of homeowners. That total was less than the 6 percent who said they expect to see a rise of 31 percent or more. No matter how much talk of a bubble there may be, homeowners continue to demonstrate that they have no clue about the ramifications of one. And this is in an environment in which prices actually are falling! The denial runs so deep, it's not even denial anymore. It's some kind of epic disconnect between the reality of a newly falling housing market and an unwritten social contract that says home prices do not fall. [The Elliott Wave Financial Forecast, April 2006]

Yet, you don't have to have lived through a housing bust yourself to appreciate the effects. Just think of someone you know who lived through the bust in the Houston oil patch during the 1980s, or the Northeast condo bust in the late '80s and early '90s, or Atlanta's real estate bust in the 1970s. Most property owners then twisted in the wind, waiting, waiting for prices to turn back up. Many of them couldn't hold onto their property, and the people who picked up the pieces at rock-bottom prices became the next land barons.

That brings us to the big "What if?" What if that investment house or condo you bought doesn't sell? Plan B is usually to rent it, but what if you can't find renters? Do you just hold on and keep paying the mortgage and other carrying costs, or do you throw the towel in and sell at a loss to whomever will buy?

The real problem is that markets can move much slower than we expect, which makes it all the more difficult to decide what to do. For reference, historian John Brooks wrote about how it felt to live during the Great Depression . In one word, it was "surreal." Keep in mind his description of the 1929-1933 experience:

[It] came with a kind of surrealistic slowness … so gradually that, on the one hand, it was possible to live through a good part of it without realizing that it was happening, and, on the other hand, it was possible to believe one had experienced and survived it when in fact it had no more than just begun.

When a market starts to turn, it doesn't have to be quick. It's more likely to be slow and painful – like boiling a frog. (The idea goes that a frog would jump out if it were thrown into a pot of boiling water. But if it's put into a pot of cold water and then the heat is turned on, the frog could not judge the threat.) In fact, economist Gary Shilling wrote in Forbes magazine last September, "History also suggests that a housing boom does not have to end violently. The Federal Deposit Insurance Corp. counted 63 home-price run-ups in various cities over the last 30 years, but so far just nine of these ended in busts, and all of those were regional." He goes on to point out that prices that went up gradually tend to come down gradually over many years. That means slow housing market busts can slowly boil investors who don't have the cash flow to hold onto their properties until the market turns again.

So, will there be more Uncle Mikes in the world next year this time? Thinking about human nature, the answer has to be a resounding 'yes.' There are only a hardy few who can hold on through a protracted bust or who are able to absorb a loss and move on to the next investment. In the meantime, though, many people who own property will suffer from the effects of mental anguish and indecision, not unlike that poor frog who doesn't know if the water is going to keep getting hotter.

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Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company. She has been an associate editor with Inc. magazine, a newspaper writer and editor, an investor relations executive and a speechwriter for the Federal Reserve Bank of Atlanta. She is a graduate of Stanford University.