"1) A good's price can also fluctuate a lot without being sold short. Basically, the law of supply and demand is the underlying force of a good's price fluctuation."
Agree - but short selling allows larger institutions/hedge funds to significantly manipulate the market down. We see this in the share market all the time and was also one of the reasons it was banned during the worst of the GFC.
Point 2 Owner occupiers will only sell if there is good reason to, and in reality the value of their home is of no real consequence. As for the investors a significant portion of them would have longer term investment plans so a few down years would not be of any real consequence to them.
Point 3 The majority of owner occupiers could handle 10% interest rates (although it may require significant sacrifice) therefore most will be able to keep their properties. As for investors well most will also have allowed for higher rates or will have longer term fixed loans. Also people don't need shares but they need somewhere to live as such if things get though they will dump their shares just to keep a roof over their head.
Lastly as I have said before I have no doubt that there will be a level of pull back in the price from the peak then a period of stagnation, but it is extremely unlikely we will see a 40%+ drop in the whole market. You could however see 40%+ drops for some houses though.
