It really depends on how much you reduce costs. If you reduce costs enough, you can have increasing supply even in the face of falling prices. This argument sounds like one made by a hedge fund protecting its real estate investments.
The reality is that the housing market in the US (and most countries) is heavily distorted by government NIMBY regulations. Because of this, it's reasonable to expect that there is actually a lot of room to reduce the $/sqft if the market can build housing in general. Current costs are inflated by being forced into specifically prescribed solutions designed to grow the wealth of developers and landowners.
Different states are very different in this regard; Austin Texas is considered the NIMBY-est city in Texas, and it's still building lots of houses even as prices drop, and have been for a couple years now. Other states do (mal)function as you describe, but not all of them.
Price reduction against builder margins would be a more reasonable way to look at it than raw price change, and additionally factoring in the degree of financing vs cash and the cost of financing would possibly shed more light.
Stable firms, not out over their skis, can afford to entice buyers while still making a profit. Just like in a startup, the cost of money and the degree of leverage sets the [minimum] speed limit on the runway.
It really depends on how much you reduce costs. If you reduce costs enough, you can have increasing supply even in the face of falling prices. This argument sounds like one made by a hedge fund protecting its real estate investments.
The reality is that the housing market in the US (and most countries) is heavily distorted by government NIMBY regulations. Because of this, it's reasonable to expect that there is actually a lot of room to reduce the $/sqft if the market can build housing in general. Current costs are inflated by being forced into specifically prescribed solutions designed to grow the wealth of developers and landowners.