It doesn't have to be 200k above in a single transaction to upset the "poorer" market. When you've just sold your house at a big capital gain, you're more willing to pay just a little bit over the average market value if you find something nice, even without being conscious of the fact (buying something is never a perfect decision, you have a span and can be pushed in either direction a bit). And that little bit over feeds the trend delta when lots of buyers think like that over time.

I think that logic ties in with the theme of the article as well. Supply and demand regulates markets in a subtle way, it's not a binary input like "people want to live in SF or not". Maybe it's enough that 1/10 of the people who wants to move there changes their minds when they see the housing market.