The curious case of the owner occupier

There's always a bit of vested interest involved when talking about house prices. As a renter, I naturally have a vested interest in seeing prices drop. It's natural to assume that owner-occupiers all have an opposite vested interest - to see prices remain stable or rise. This is not necessarily the case. In fact for a lot of owner occupiers the house price boom has been a disaster - and for some a crash would be extremely welcome.

Here's an example - I may have missed something crucial here - feel free to point this out!

Consider five people, Andrew, Bob, Charles, Dave and Edward.
Consider three times - 2002, 2007 and 2010 (dates picked purely as an example)
Lets assume that all house prices doubled between 2002 and 2007.
Lets also consider 2 scenarios for 2010, one where house prices remain stable, and one where prices drop 40%. I.e in the latter scenario a house which cost £100k in 2002 would go up to £200k in 2007 and drop to £120k in 2010.

In 2002, Andrew is still at university, Bob is a first time buyer currently renting, Charles and Dave are owner-occupiers and Edward is looking to sell out and go travelling round the world on a yacht.

In 2002 Bob buys Charles' 2 bed London flat for £200k. Charles buys Dave's 4 bed house for £500k and Dave buys Edwards palatial mansion for £1m. Edward goes off into the sunset and Andrew is getting drunk in student bars.

By 2007, Andrew is now a renter in London. The rest are still living in the same houses. Bob's 2 bed flat is now worth £400k, Charles' 4 bed house is worth £1m and Dave's mansion is worth £2m. Everyone is a happy bunny because of the money they've "made".

By 2010, Andrew is ready to buy, Dave wants to go off Yachting, and Bob and Charles want to move up the ladder.

Which scenario is better for these four? The one where there has been a crash or the one where house prices have remained stable?

Lets consider the stable situation. Andrew buys Bob's 2 bed flat for £400k. Bob gets £400k for this and has to spend £600k more to buy Charles' 4 bed house for £1m, and Charles gets his £1m and spends £1m more to buy the mansion from Dave for £2m. Dave takes £2m and goes off Yachting.

In the crash situation, Andrew buys Bob's 2 bed flat for £240k (400 - 40%). Bob gets £240k and spends £360k more to buy the 4 bed house for £600k. Charles gets £600k and spends £600k more to buy the mansion for £1.2m. Dave takes £1.2m and goes off Yachting.

As can be seen, everyone benefits from the Crash apart from Dave, since they all have exactly the same houses in each scenario, but the people at the beginning and the middle of the chain have to shell out much less money to get to their end state.

The only people who will genuinely suffer from a house price crash are those who go into negative equity and can't get out of it. They will have lost money and won't be able to move. Those who are in negative equity on their houses but CAN get out of it will be fine.

Consider situation 3 where, instead of house prices going down by 40% they go down by 60% by 2010.

Andrew buys Bob's 2 bed flat for £160k (400 - 60%). Bob gets £160k. He's lost £40k on his house purchase price. However, lets assume that he has £80k of savings, and so is able to move. He buys Charles' house for £400k,(£1m - 60%) i.e £240k extra. Lets ignore the savings - they are just a mechanism I introduced to enable Bob to move. So in the 40% crash scenario, Bob spends, in total, £200k for his first flat, and £360k extra for the new house = £560k total. In the 60% crash scenario, Bob spends £200k for his first flat and £240k for the next house = £440k total. Even though as an owner-occupier his house went into "negative equity", Bob is still better off with a huge price crash.