"[Home] sellers look backward, remembering what they or their neighbors paid, but buyers look forward, wondering what the house might be worth in a couple of years. Positioned in time looking in different directions, when the market is rising, owners estimate the value less than prospective buyers, and a sale occurs, but when the market is falling, the owners remember the good old days of high prices, and the buyers are thinking about a better deal in a couple of months. Then there is no transaction, unless it is at the high sellers prices. A third story comes from the behavioral economics: It's loss aversion. As long as I don't sell my home, I can comfortably maintain that it is worth what I paid for it."

Professor Ed Leamer of UCLA's Anderson School in a presentation on the underestimated importance of housing to the US economy at Jackson Hole, WY. Link from Calculated Risk.

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