Suppose you live in a “declining market.” Nobody wants to buy in that market because just 2 zip codes away it is stable and they can purcase with less down. Due to this, the “declining market” continues to decline and is now an “untouchable neighborhood”. Only those that can't afford anywhere else buy in a “declining market.”

Economics play this role in the market today. Those with similar socio-economic status tend to gravitate toward each other. In a “declining market” policy, you accentuate the problem. You basically force the areas that are in the middle to either rise to the top or fall to the bottom and you get a “class war” ocurring. Those unfortunate enough to be in the bottom will never recover and will alway be in a “declining market.” When a “declining market” does rise, it will be at a less than stellar rate compared to those that are NOT “declining markets.”

I know, this happens today to some degree already. However, the impact of this is minimized because those that live in the areas of middle ground have a sense of security that they have a chance of rising values and someday moving. A “declining market” would remove that all important sentiment. Sometimes it is merely the idea that you can be great that keeps people from giving up, even if it is just a fantasy.