The neighborhoods that are most vulnerable are the ones that had more 100% purchases, and are generally in the less affluent areas. In addition, the further out the homes are, the higher the chance of price decline, exacerbated by the rising gas prices. With that said, homes in the best neighborhoods such as Almaden, Los Gatos, Saratoga, Cupertino, have continued to hold their value very well.
I believe the falling prices will simply bring more differentiation between the different areas. Just look at the correlation between prices and school scores and general affluence of the area.
And we cannot accurately tell if things have bottomed out until they already have and things are moving up. The same thing happened in 2003, when the market stopped after we went to war with Iraq. The first half of the year was a great buying opportunity, and by September we started having multiple offers and that lasted 3 years! People will always have real estate needs, and many folks have simply pushed it off with the rash of bad economic news. But it will come back.