It is good to reflash our understanding of some aspects of the banking system:
http://sosnews.org/library/banks/money2.htm
The government can allow annual inflation to be 3%, but can not afford to allow an annual deflation of 3% to happen.
With high level of debt, the banks have to increase their credit supply in order to keep the banking system rolling.
Government is happy too because its revenues will increase and it will be easier for it to repay its debt in the future.
Every day people repay their debt resulting in less credit in the market. Therefore, banks have to find new customers to lend their money.
If people are not willing to take loans, that is when the banks and the government have to worry first. If things deteriorate further, then deposit holders have to worry.
As long as the banks keep pumping more liquidity into the economy, it is hard for the house price to drop. But, there must be a time when banks will stop lending relentlessly. This is a legalized Ponzi scheme run by the government and banks, IMO. The last entrants into this Ponzi scheme will usually be the biggest victims.
