saw this in the UK in the early 90s.  Happens here too but to a lesser extent.  From what I've seen in the US, people sell then either rent back or use a longish closing (90-120 days) to find the new home with a virtually done deal on their sale side in hand (contingencies cleared etc).  It's always tricky trying to get a chain set up as most people don't have enough capital to own 2 houses at once.  Contingent sales are always a pain in the ass for all concerned.  Even worse in places like the UK where the paperwork is much more cumbersome.

But my point wasn't that trading up isn't tricky, but rather price cutting tends to be proportional to price so you want to move up in price when the market is weak.