Not so hard if you assume it's their second house, and they bought the previous one a few years back. Once you're on the housing ladder, you're protected to some extent from the increase in the price of the house you want to buy, by the increase in the price of the one you already have.

Exactly: we bought in San Jose in Sept 2011 and have seen our townhouse's value increase by approx 60% since then (which seems ridiculous to me). We really lucked out on our timing.

The seller who had originally owned our home sold for a ~20% loss over their purchase price (purchased in 2007).

This was my experience, the small house my wife and I bought originally, then after a few years we were vested in our options and had some equity in our house, the combination let up step up to a larger house with essentially the same payment (rates had come down, our down payment was bigger).

I don't disagree. If you've been owning in SF for the last 20 years, you're good. But how many people in SF arrived in the last 5-10 years?