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Huge swathes of people would be left owing more money than their property was worth, many would default.
Apart from that, it's not a bad thing. However, for that to happen supply would have to outstrip demand so either there would be a mass of new housing stock being built or the wider economic situation is so bad that no-one dares move house.
andyp-
Huge swathes of people would be left owing more money than their property was worth, many would default.
Wouldn't that depend on what proportion of people were looking to refinance their debt?
Your average / modal home owner isn't going to be doing this very often, so provided they are still able to service their existing debt obligations, nothing should really change. For them, loan to value is pretty much a once only problem.
(Assuming interest rates don't go up at the same time...)
Buy-to-let might be a different matter, as the value of the property is an on-going factor of the leveraged finance model. If the value of your rental property drops, the bank may offer less favourable finance, which combined with falling rental incomes (that correlate to falling property prices, even if lagged) don't paint a pretty picture.
IIRC, that's how it's been in the past few house price "corrections", but I guess other models might be different.
NotThamesWater
Can anyone explain why a crash in the housing market would be a bad thing? Assume houses were suddenly 10x cheaper to buy.