That's not how it works, at least not in 2009. If you don't have enough equity, the bank is not interested in letting you short-sell your house and thus won't

That's not how it works, at least not in 2009. If you don't have enough equity, the bank is not interested in letting you short-sell your house and thus won't approve it (they would rather you default on the loan!) People who have more equity in their homes will decide to sit tight so they don't have to take a loss. Even commercial real-estate will let their properties lie fallow rather than lower the rent. "Supply and demand" is a nice platitude and economic theory but it doesn't reflect reality.