for an economic model with two people I agree. But what happens if you add a person C as a bank, who's lent both A,B, to buy houses from builder D. Having made a quick buck, D borrows more to build homes that he expects E,F,G ...etc to purchase ... but hey.. these guys never showed up.
A & B house value declines because of all these houses in the market which D can't sell. Since the houses were collateral for everyone's loans, they figure its better to walk away and let C reposes them since its more cost effective for them to take the hit. Now everyone is bankrupt, and C is sitting on a lot of homes with no cash.
There, fixed that for you.
The model is now a closer representation of reality.
Now what were u saying about government stimulus?