That's microeconomics 101, so it's theoretically sound. Is there some effect in real life that prevents it from working the way the theory predicts? I don't t

That's microeconomics 101, so it's theoretically sound. Is there some effect in real life that prevents it from working the way the theory predicts? I don't think so. I would put the burden of proof on you, if you want to go against a solid theory. It seems self evident that more housing supply means houses stay on the market longer (there is lots of evidence for that) and that means sellers have more incentives to lower the price to get a quicker sale (lots of evidence for that too.) Look for historical real estate inventory reports that include prices and you should see the effect when time on market increases. It's important to note that prices would only fall if the change in supply overwhelmed the change in demand. In cities like Vancouver the demand is increasing at such a rate that increased supply only means prices don't rise as much as they would have otherwise. Time on market is always short. There was a brief dip in prices early in the pandemic and then things compensated back in the other direction.