Regulations typically make implicit assumptions about these important trade-offs, which may pre-empt adjustments by users and providers of the new technologies. Even well-intentioned regulations can end up addressing the wrong problem or short-circuiting creative innovations. On the other hand, public policy will have to confront genuine and significant problems, when these become clear and are not self-correcting.
That is, in the eyes of the lenders, declining house prices diminish the quality of the borrowers' collateral, which effectively reduces the availability of credit to households that can be used to finance consumer purchases. This effect is another reason to be concerned about the possible consequences of greater-than-expected house price declines.