Well, my crystal ball is as cloudy as the next guy's, so the reality is that nobody can really know the answer to this question. I can, however, offer an opinion or two...

There is a relevant article in today's Seattle Times. As noted there, prices continue to fall both locally and nationally. When will they hit absolute bottom? Its a tough question with a couple of different common answers.

In the prevailing view, prices are near bottom and we should begin to see renewed appreciation either late this year or next.  This position is supported by the simple fact that we've seen an historic drop in values that obviously cannot go on forever.  Moreover, the current downdraft in values is driven largely by the large volume of distressed properties on the market (either bank owned, or up for a short sale).  As this volume works its way through the market, we should begin to see stabilization of prices.

There is a much darker view, however, most recently mentioned on Seattle Bubble (a web site WAY ahead of the curve, at least to date).  Beginning in 1997, housing values began to oustrip inflation for the first time.  In other words, housing values began to deviate from the historical norm.  Every economist knows that sooner or later values usually return to that level.  The recent "pop" of the housing bubble did NOT return housing values to where they would be had they simply kept pace with the historical norm, i.e. the rate of inflation.  If "back to earth" means a return to this historical norm, we've got a ways to go yet.  Ouch.

My opinion?  I'm a pessimist generally, and I've long admired the historical norm.  On the other hand, things -- and dynamics, and fundamentals -- can change over time.  So I am guardedly optimistic that we are at or near the bottom, but I am certainly not convinced and recognize that we may have more to fall.

As for what areas are selling best: As a general rule, the closer you are to a "downtown" the greater the value of the property.  The link above notes this dynamic.  Interestingly, there are even "micro-markets" that are driven by a completely unique factor.