Declining prices are much more due to changes in the economy (in this case, a recession), not the housing supply. Aggregate incomes and wealth dropped a lot during that time.
If you were looking for something that indicated overbuilding, I would look for declines in the ratio of rents/sale prices to median metro income. If housing is getting cheaper compared to incomes, that means supply is catching up to or outstripping demand. This could happen regardless of boom, bust, or stagnation.
