Demand is affected by what buyers are willing and **able** to pay.
People are overstating the effects of foreclosures, IMHO. Even if there were NO foreclosures, prices would go down if lending standards became rational (20% down, 28% max DTI on verified income, 6 months’ reserves, etc.).
Loose lending is what drove prices up since at least 2001.
People who “stayed put” didn’t affect housing prices on the way up, and they won’t affect prices on the way down. The only houses that affect prices are those that sell. If unqualified buyers can no longer buy over-priced homes with Monopoly money, the ruse is over.
