Low Home Values Are Good For Everyone... Almost

All too often, pundits who write or broadcast about the US economy measure the strength of the housing market by home prices.  According to their traditional wisdom, rising home prices represent a strong market and lower home prices mean the market is weak.  Well, I beg to differ, as I believe the opposite is true.
As home prices reached never before seen highs in the 1970's, lenders realized that fewer and fewer consumers could foot the monthly mortgage bill at prevailing interest rates.  To maintain sales volume, lenders began offering longer amortization periods, replacing the typical 15 and 20 year mortgage with a loan paid off in 30 years.  The 30 year mortgage became standard as home prices continued to rise, and by 2006 some banks offered 40 and 50 year loans.
It doesn't take a rocket surgeon to realize that longer mortgage periods help to prop up home prices that have significantly outpaced growth in wages.  By lengthening the payback period to lower the monthly payments, two significant changes have occured in the home-financing industry:  fewer mortgages are ever paid off and banks are making a lot more interest over the longer amortization periods.
Consider this:  the average Californian moves (changes homes) about every five years.  That means that every five years the home owner with a mortgage re-starts the 30 year payback cycle, paying mostly interest with each payment in the first few years.  For example, if we get a $100,000 mortgage with a 30 year payback at 5%, after five years we will have paid $24,420 in interest and reduced the balance on the loan by only about $8,400.  That's $3 of interest for every $1 of balance reduction.
So, if home prices were low and mortgage paybacks were shortened to 10 to 20 years, who would that be better for?  Certainly home buyers would benefit, as more of them would be able to afford homes and the amount they would pay in mortgage interest would be greatly reduced.  Real estate professionals would benefit, since more homes changing hands would generate more transaction fees for agents, inspectors, escrow companies, and others.
Who would not benefit from lower overall prices?  Certainly the mortgage lenders would not benefit, as they would not receive as much in interest payments if smaller mortgages were paid back faster.  Home sellers would not benefit, as many use the increased value in their current home to help with the down payment for a larger new home.  Of course, the home owner could just pay a little extra on their mortgage each month and retire the debt early, thereby saving lots of money on interest payments and creating equity that could be enjoyed when they sell.
I remember "note burning" parties when I was growing up.  Seemed that every summer one of our neighbors was paying off their mortgage and threw a celebration to mark the achievement.  It was a time when we were a nation of home owners, not a nation of borrowers.