Housing is a special form of wealth…If its price falls after a bubble, the cost of consumption is falling at the same time as the amount of wealth. In fact, the country has become richer, because all the same real assets exist, but their replacement cost has fallen.
Also, since houses are mortgaged, the wealth loss is shared by household and banks, while the consumption cost gain is entirely to households. The real wealth of households will thus have risen, and consumption should increase (I am thinking that banks are owned by richer people, who save more). Am I right on this?