In CA, you might have to drop them by half. Yes half. Even that might not be enough, frankly. But you'd get transaction volume again. In the northeast, a third to half would do it, and in the rest of the southwest outside CA, even a third.
But pretending the bubble nosebleed prices are real and holding out for a buyer? Hell will freeze first. More to the point, the banks will get stuck with $100 billion in property, which they will dump, first. And prices won't stay up after that happens.
Lower prices won't hurt nearly as much as people fear. In fact, zero transactions for five years would be much worse.
I agree. IMO, the whole sub-prime mess is a result of the PTB trying to keep the prices artifically increasing, instead of allowing the market to correct.