To me, the most critical component of this whole financial turmoil is WHY DID REAL ESTATE begin to drop in value in the first place (beginning around late 2006 and thru 2008).
I believe fervently that it was the 2005-2008 oil price hike shock - (with estimates that $200/barrel oil would become the norm) - that spooked business people, venture capitalists, financiers, and consumer home owner into selling off properties ....
... which caused the snowball (price decline) effect that ultimately caused banks and institutions to lose TRILLIONS in property-leveredged capital.
The economy was doing nicely at 3-4% GNP until the quadrupling of energy prices SUCKED away all the earnings and extra spending power of consumers and businesses alike.
The answer to your question in a word, oversupply.
With so many more buyers arriving on the scene, home builders had the incentive to fill the current needs of the market. As money became increasingly easier to get for more and more people, supplies of available homes became scarce and prices began to rise.
As the terms of the mortgages, providing the majority of the thrust in the market, began to run full circle and many, if not most of those who were subject to those terms could not now afford to pay their mortgage payments.
As the defaults and subsequent foreclosures commenced, the supply of available homes on the market increased at the same rate. Many of these newly available homes were going at deep discounts or at auction.
As the prices at which homes are being sold for in your neighborhood decline, so does the value of your home. Until the price of a previously owned home rises to at least the level of the cost to build new one, prices will be depressed.
IMHO, the impact of oil prices on the prices is of a secondary nature. As the cost of commuting to your place of work rises, people will begin to reconsider their individual life style choices and make the adjustments as they view necessary. Also, the cost of maintaing ones residence may also influence life style decisions.