As the values of homes adjust down and a new strata of home prices emerges so will the rest of the economy. Jobs , business', investments , etc al aspects of an economy were artifically puffed up in value. As things try and find a level it CAN be a chance for people to take advantage of the down markets. Goods and aervices will all relect the new markets.
Housing had gotten to the point where most households needed 2 and 3 incomes to keep up. As the dust settles some who maintained their incomes my be able to go back to a 1 income situation and thrive. Some may find that the unexpected loss of job created cuts in spending that in the end were just wasteful any way.
I think the thing that may guard against record INflation after this period of DEflation is that the rest of the world in in the same recession.