There is a lot of hoopla in the media about declining housing prices being somehow a "bad" thing. Low housing prices are in fact great for (almost) everyone.
If you don't own the house, then the cheaper the house is to buy, the better it is for you.
If you own the house, but aren't planning on selling, and aren't planning on withdrawing equity, then higher value of the house does not do you any good. The only thing higher housing values will give you is potentially higher property taxes.
If you are hoping to withdraw equity, then you will probably put yourself in the position where you can not afford the new higher mortgage; and that means you will default and lose your house to foreclosure. So declining housing value is good for you - it keeps you from withdrawing equity (what equity?!), and keeps you from losing the house to foreclosure down the road.
If you want to sell your house and buy another house, then lower housing prices are also good for you. You'll get less for your house, but you'll also pay less for the new house. Chances are you want to upgrade into a better house, and the more expensive house you are thinking about buying will decrease in price more than the cheaper house you are selling.
The only people who benefit from higher housing prices are flippers, and they account for a very small percentage of home owners.
It's basically in everyone's interest that home values align with 3 times income and 100 times monthly rent. There is no point continuing the charade that a house in say Stockton that sold for $100K in 2001 and sold for $400K in 2006 will not become $100K house again in a few years. Buyer if this house makes $35K at most, $100K is what the buyer can afford, and $100K is what the buyer will pay.
Another thing is, housing was never looked as "investment" in the past. Your house is a place to sleep and a place to cook; nothing more really. Stock market always outperformed housing in the past. Housing prices always appreciate by about the rate of inflation and stay around 3 times income and 100 times monthly rent.
Here is a nice chart that shows that housing prices always stay relatively stable relative to income and inflation, and the recent run-up in prices was completely out of whack.
A lot of analysts on the news say that lower housing prices will cause recession. They probably will, and you will probably still be much better off. Say you make $40K a year and you bought a $300K house in 2006. That means that you will either default and walk away from the house (by far the most likely scenario) or you'll be a slave to the house payments for the next 50 years - you'll be spending basically all your income to pay off the house.
If we go into recession, the housing tanks, and the same house is now for sale for $100K, and your income also goes down to say $30K, then you can now easily afford this house on your new lower income.