Initially, I think that's right. But housing markets are pretty decent at price discovery: it really is "worth" what someone will pay. Even during the long run-up here in Northern California, there were some pauses. I know people who sold during those pauses and didn't get a hit in the first weekend (which is 'normal' for the last few years) had to drop their price to get the deal done. Last fall it wasn't uncommon to see people drop their ask by $100k on a $600k house.
And because you're talking about a primary residence, there's a time factor: usually you have motivated sellers and picky buyers. The current Northern California climate is just that there are so many more buyers than sellers, you're bound to see a trade take place just because _someone_ will be "less picky" ...
/jordan