Underwater Mortgages

There was an interesting talk from William Weaver of MIT discussing the American housing market.
In America you can just walk away from the mortgage and the bank can't pursue you for the outstanding debt. So the fear is that people will do just that when the house value sinks well below current sale value.
Although a huge number of American home owners now have negative equity in their property ("underwater", in his parlance) Mr Weaver doesn't expect many of them to walk away from the mortgage. A lot of properties have foreclosed in USA, but those are mostly people who have lost their jobs or had margin calls and so on. He believes that those who can afford to pay their mortgage regular payments will continue to pay them rather than abandon the house.
Here in Australia the law is different, and you can't just walk away from a negative equity mortgage. So if Mr Weaver's thinking is right, most people will just hold on until house prices rise, or if they don't think prices will rise soon, they may just cut their losses and sell the property for the best price they can get.