Exactly. No one would have bid that $200K house up to a million if they didn't think that some other sucker would come along some day, and give them two million for it. What collapses bubbles is that markets eventually run out of suckers.
Here's something for the rose-colored glasses types to think about: These figures are from September closings, the ink on those purchase agreements was still wet back in July. In the summer, even a tin shack looks like a mansion in some people's eyes. Before pronouncing the bottom of the housing market decline, see what the figures are in this coming March, from January closings of November and December purchase agreements. When people's minds are on the holidays and gift shopping, they're not in much of a mood to tromp through rain, snow, and freezing cold to look at real estate to buy.
To be honest, this is a very locality-based issue. My sister bought a new house in Clermont, Florida for about $106,000 in 2002, and resold it 3 years later for $200,000. That's the type of market that fits your description. On the other hand, I had my house near Chattanooga for 5 years (2001 - 2006) and realized about a 12% gain. Slower market, but I've noticed that prices are steady in that market, especially when compared to the more speculative "hot" markets like in Florida, California, or along the east coast.
Location, location, location...