I beg to differ. Wealthy will be fine because they have diversified assets. The ones truly hurt would be people in their 30's, who have just started putting down roots (first home, family etc) and would have invested a chunk of their savings in the downpayment. So wealth inequality might reduce a bit between top 20% and bottom 20%. But it will increase between 1% and the rest.
> ...nothing is destroyed by the lowering of housing values besides speculative worth.
Household balance sheets for middle-class, whose main asset is their homes, are destroyed. Now suddenly you are left with, say, a mortgage of 400K vs a house worth only 250K.
> ... help income equality along with leveling the gap a bit ...
Nope - the boomers would still fare better since their mortgages should have been paid off by now (generally), and they have a decent rich safety net. Ones screwed are genX and genY as I explained above.