Many people feel trapped. They can afford their monthly mortgage payments, but cannot afford the loss involved in selling.<quoted text>
People I've talked to have led me to believe that they believe prices will go back to pre-crash days someday. To me, current price levels seem pretty natural and I would expect future appreciation to out-pace inflation very little if at all.
Your observation is probably correct, but prices will recover faster in markets where supply is more limited. New home prices here have been escalating at a significant rate in the last six months, largely because there is a very small supply.