The only problem with that scenario is most of these people would actually lose money because they would have to sell below market and probably for less than they owe.
So, even though they could sell the house, they would still be in debt. (the bank isn’t going to forgive the balance)
Of course, the answer would have been not to buy above your means to begin with.
It’s one thing to buy an ‘affordable’ house with a bank loan, and another thing to buy your ‘dream’ house because you ‘want it’.
The rule of thumb, at least for me, is that if you can’t pay your mortgage with one pay check, then you can’t afford it.
But,that’s just me.
Actually there is another problem, and it is the one that makes this situation so difficult.
Houses don't exist in a vacuum. They are part of a neighborhood. When the irresponsible buyers take their medicine and sell at a huge loss, they drag down the value of all surrounding houses. A friend of ours got caught up in this very scenario. They were fine, their immediate neighbors were fine, but a couple of streets over - oh brother.
Those were the last houses built in the development. The bank and the developer wanted to wind-up the deal, so they sold those houses with ‘aggressive’ financing. Most of the people that bought them had no financial business being in them. And they weren't for long.
Suddenly my friend and all of his neighbors, through no fault of their own, are completely underwater, . When his company offered him a pretty good promotion if he'd move to another location, the shellacking he'd take on his house made the move impossible. I don't believe this is an isolated example.
That's called a "sunk cost", it most likely will never be recovered. You should not factor in what you are losing in your decision, only in the impact of cash flow going forward.