If you borrow 80k to buy that 100k house (20% down), and the house drops to 50k, you still owe 80k. You need to be able to sell it for at least 80k, or you ain

If you borrow 80k to buy that 100k house (20% down), and the house drops to 50k, you still owe 80k. You need to be able to sell it for at least 80k, or you ain't getting that other house for 50k. So what happens is anyone that bought at an inflated price aren't going to sell for a number of years (until their equity gets in line with what they owe, or inflation brings the price of the house back up). Problem is that people were panic buying at inflated prices, because they thought prices would go up further in the future and had to move fast. But they get in over their head, and a slight disruption (life events happen) can cause them to miss payments. Now they are forced to sell or abandon the house, and the bank is forced to take a loss (if in the case of a short sell). And if someone is already losing their house, they aren't going to be doing much maintenance on it so the house ends up in poorer quality even if the current owner doesn't specifically try to sabotage the house. So now you end up with a bunch of houses on the market that aren't really move-in ready, so investors sweep them up limiting the supply, and cause the cycle to bounce all over again.