If they were in the market in order to flip the house, tough cookies. They had a hand in driving up the price to ridiculous levels. If they bought the house as a long-term residence, so what? Assuming they could afford the payments for what they bought, all they ned to do is wait for the market to cycle through the dip. Meanwhile, demand a break on property taxes.
That San Antonio family of flippers on "Flip this House" are doing very well. Saw one house last week they bought and renovated for $80k and sold for $140 17 days later via a front-yard auction. Incredible.
Your point is exactly right. If you thought the house was worth what you borrowed when you got it, price fluctuations after you are in it aren't really relevant, unless you were intending to flip it all along, in which case that is the risk you took. No one will get thrown out of their house due to lowering values. To the contrary, if you get into a pinch, the bank will be even easier to work with, now that their collateral has lost value.
>> If they bought the house as a long-term residence, so what?<<
I agree. 'Course, a large percentage of people even in that position found themselves having to take out negative amortization or similarly "risky" loans with their salvation being in the increased value of the home down the road - which now will not happen soon enough.
The stats on the number of this kind of loans recent popularity should give shivers to anyone who understands that prices cannot go up every year at double digits.
The pyramid scheme has hit saturation. They simply cannot manufacture any more demand without allowing dead people to qualify for loans.