Housing: Stuck in Place

The housing market still isn't clearing.  In my neighborhood, almost nothing is coming on the market even though we're well into spring, and half of what does appear is either utterly decrepit, or wildly overpriced, or both.  People are not selling unless they absolutely have to. Nor are people buying.  I think the value of our house has dropped, but I can't be sure because nothing's moving on the market.

Laura at 11D has noticed the same thing as she tries to sell her house:

I was worried that we would sell our house quickly and then not have any place to move. There are very few houses on the market right now. The only homes on the market are the duds that have been around for six months or more. The duds are sitting, because there is something extremely wrong with the house -- oil tank leakage, busy street, proximity to an expanding hospital. 
 I check Realtor.Com ten times a day looking for new inventory, and there's nothing. People aren't putting their homes on the market because they're waiting for home values to bounce up. They are putting off that retirement to Florida for one more year. 
 Well, the panic has abated, because nobody wants to buy our house. We're six houses away from the commuter train line. We never hear the train, because we are former New Yorkers who can sleep through a five alarm fire, but prospective buyers aren't convinced. 
I also think that prospective buyers aren't buying anything right now. They are sitting and waiting for prices to drop further. This is a high stake game of chicken.
The problem is, it's not a game of chicken. The buyers don't have to buy.  In more and more cases, however, the sellers have to sell: they can't afford the house, or they need to move.  As those people are forced onto the market, prices fall further.

Where does it end?  By historical standards, prices should have bottomed by now.  But we had the first-time-homebuyer's tax credit, which temporarily buoyed prices by moving a lot of demand forward.  Given that, I'd say we have at least another year for the price collapse to run.

As I wrote earlier, this doesn't particularly bother me. We've spent the past two weekends getting the horrid red rocks out of our front yard, and digging holes in the gritty clay soil to lay down higher-quality dirt and the very first plants of my own that I've ever planted: climbing roses, day lilies, calla lilies, and snapdragons.  This weekend, we're going to take up the rest of the rocks, yank out a seedy-looking (and apparently dead) tree, and put in boxwoods, tea roses, and begonias.  My herbs are germinating in an $8 plastic hothouse purchased online.  Our heads are full of plans for the laundry room and media center in the basement, the new patio we want to install out back, the kitchen we will eventually put in.  Maybe we won't get our money out of it, but we'll enjoy it while we have it.

But for someone like Laura, who really wants or needs to move, this is a huge problem.  I suspect that the first-time homebuyer tax credit, rather than helping matters, has simply made them worse.  The remaining homebuyers on the market are those who demand an absolute steal--and homeowners who saw prices bottoming out were probably encouraged to hold on even longer for a rebound.  Now everyone is even more thoroughly stuck.