It depends on where they want to move. For national policies prices should drop nation wide, ergo people would still be able to move inside the same country (probably 99% of relocations).
And if they don't sell, they wouldn't care much. Yeah, annoying, but as long as you pay the installments, not much changes in practice.
>For national policies prices should drop nation wide, ergo people would still be able to move inside the same country
No. Suppose I buy a million dollar house at 20% down. I thus owe $800k in principal to the bank. I live in the house for a few years, and build up $100k in additional equity beyond my down payment.
If housing prices stayed the same, I could sell the house for $1M, use $700k of that to pay off my remaining principal, and use the remaining $300k towards my next $1M house. (If housing prices appreciated by 20%, I have $300k in equity and $200k in profit to put towards another $1.2M house.)
Now suppose the housing market crashes by 50% and my house is worth $500k. If I sell my house for $500k, I still owe $200k of principal to the bank. I don’t have any leftover money to go towards another $500k house, or even a $0 house; instead, I have $200k in debt that buys me absolutely nothing.
Are there any financial products to help with this situation; ie allowing you to take out an $800k loan on the new house? Presumably this wouldn’t be any riskier for the bank than simply continuing to own the old underwater loan. Possibly less risky since the homeowner, living where they wanted to live, would have less incentive to simply walk away.
And if they don't sell, they wouldn't care much. Yeah, annoying, but as long as you pay the installments, not much changes in practice.