Does the declining real estate market make it a good time to trade up?

I've heard real estate agents arguing that the weak real estate market makes it a good time to "trade up" and buy a more expensive home.

Keller Williams Realty founder Gary Keller makes the argument this way:

Falling home prices are a great opportunity for move up buyers. Even though your home sale price may be lower, the smaller loss at sale can be compensated by greater savings at purchase. If home prices dropped by 5 percent, here's what it could look like if you decided to trade up:

Old home price = $200,000

Sell at $190,000 = $10,000 less

New home price = $400,000

Buy at $380,000 = $20,000 savings