Your statements don’t really make any economic sense at all. What is your argument exactly? Homes go up for sale for all sorts of reasons having nothing to do with foreclosure: new homes, people moving, divorce, death, etc, etc. Yes, there will be a disproportionately large number from 04/05, but they will still be dwarfed by all the older homes on the market for “normal” reasons.
The prices of homes, like those of any other good, are set by marginal demand. The people you know who bought pre-2003 and are comfortable are not in the market and thus will not affect the price.
Over the last few years the marginal buyer has been willing (speculative mania) and able (exotic mortgages) to pay a lot more than made sense, so prices got bid up a lot higher than made sense. As these reasons go away, so too will the unusually high prices. Sure, foreclosures of people who bought during the bubble years will help speed things along by adding inventory, but they are not necessary for the process to happen.
And besides, I think that 04/05/06 were the 3 biggest sales years ever. I am certain 04/05 were disproportionately quite large, at least. So even if what you said made sense then we should expect large declines.
