Here is a chart of house price and volume during the last bubble and bust, and the current bubble.
It comes from this interesting presentation
http://alumni.anderson.ucla.edu/aw/2005/leamer.pdf
Los Angeles price rose appx +100% from 1995 to 1989. stopped rising in 1989, chopped around in 1990, and started declining in 1991. The decline lasted 6 years. By the time it was over, price had fallen 27%. That's in nominal dollars. In real (inflation-adjusted) dollars, the losses were much greater.
What did volume do? It rose through 1988, then rolled over and started falling - an early warning sign. Volume declined until 1991, to half the 1988 peak.
When price started declining in 1991, volume started rising. Volume kept rising as price kept falling, for 6 long years. When price was at its lowest in 1996, volume was close to the peak of 1989.
So it was not true that volume takes a dive when prices are way down. Nearly as many people were selling into the 1996 price low and suffering the losses of the past 6 years, as were buying into the soaring prices of 1989.
I agree, most people stuck it out and now, 10-15 years later, have the same faulty, rose-colored memories of 1990-1996 as you do. "Most prices stayed firm." "Prices were flat for a while, that's all." "Only the repos went down." All wrong.
And your memory is better than most. The real estate brokers and get-rich-quick folks have no memory at all of the 1990s housing crash.
By the way, here is another chart with 10 year bond yield and CPI inflation.
Inflation was running about 3%/yr in the early 1990s, which is 19% over 6 years. So house prices declining 27% in nominal dollars meant a decline of about 46% in real dollars i.e. actual purchasing power.
Interest rates were pretty high in 1990, about 9% for the 10 yr bond. The Fed funds rate was 8.2%, so the yield curve was nearly inverted (sound familiar? look at it now) During the next 3 years the Fed lowered the Fed funds rate to 3%, the 10 yr went from 9% to 5.4%. The 30 yr mortgage went from over 10% to under 7%, almost a 4% decline, which probably helped stabilize home price.
Today the 30 mortgage is under 7%. In 30 years its never been lower than 5.3% (in 2003), which isn't that much different from current. If/when a house price decline starts, the Fed doesn't have that much interest rate "ammunition" left to stabilize house price.