"People all want out now b/c they realize that their home values are inflated beyond reality,"
Homes are not inflated beyond reality if buyers are willing to pay the price. Here in central New Jersey, homes are still selling but there are just so many more for sale than there were a year ago.
Last year, you could find 3 or 4 homes for sale in a decent area of my township. Now you can find 10. The well kept lower/middle market ($250,000 - $500,000) priced homes still sell as do cheap fixer uppers. It is the poorly maintained but overpriced homes that are dead in the water as are many of the bigger homes in the $600,000+ range. Homes and land west of here in the rural areas have gone down because the price of commuting (gas) has made it more expensive to live in many of those areas.
On my street alone, there have been 10 houses for sale in the last 3 months. All have sold except for two which were small and priced way too high. My neighbors (she was a real estate agent) sold last year for $395,000 and a month ago an almost identical house, four doors down sold for $460,000 and one behind us (slightly larger) sold a couple months ago for over $500,000.
We've been looking for a new home and anything that is decent and reasonably priced (not cheap, just fair), still sells quickly around here.
Buyers in many markets are becoming increasingly reluctant to pay the prices, and prices are dropping.
Do you see what I mean about reality being blurred, here? $250K is not "lower market." How many "lower-middle class" families can really afford to purchase a $250K house? Sure, they could using an 80/20 ARM/HELOC, but that is not reality...that is idiocy.