I don't know what you have been taught, so I'm speaking from outside knowledge and personal opinion - I don't know if it is one of those things you are supposed include what the teacher has told you but...
when people are spread to thin - house poor - they risk, obviously losing their house, but when people are unable to spend money they are unable to put money into the economy and therefore the entire ecomony slows, which then means people losing jobs because businesses are suffering - if people lose jobs, more people are unable to pay their mortgages and therefore the cycle continues - this will eventually cause a recession - the more people who lose their jobs, the more houses that will be forclosed on - which means where do those people now live? it can begin an entire cycle of poverty for families and when children are raised in poverty they tend to do worse in school - there even if they economy has improved they are less qualified for good jobs and remain poor and often in low-income public housing... The government should be concerned because as as a result of people losing their homes the economy weakens and if the cycle lasts too long or deepens far enough they will not have a prosperous country - which limits tourism - who wants to go visit poor countries? Lower tourism again ads to less money going into the economy.
Of course you could also, should you be anti-war - discuss how the government spending billions of dollars on a war - is billions that is not being spend to help Americans dig out of this hole...
As for first time buyers or investors with the money to buy - recession can be a good thing - housing prices drop, and since the first time buyer doesn't have to worry about selling their current home they are able to get lower prices (because of the weakening seller) - this is the position I am in right now - we figure within the next year year and a half we will be able to buy a home because we currently don't own one and the prices will be lower because people will want or need out of their current homes for financial reasons.
Sorry I am figuring you are American - and all my babble really applies to the state of American economy (although it could happen anywhere, really - but alot of other countries have more socialized programs already in place that can assist people more) - I'm in Canada, Toronto to be exact and right now we are still experiencing the opposite - houses are going into bidding wars and are selling for far more than they should - the house I live in two years ago would have sold for about 250K - the house right next door built same time period, same size (our houses are war houses and the street really has two different floor plans) and right now they are asking 400K for it...
You could also look at what other western governments offer in terms of assistance and public housing in comparision to where you live... I have said this before I have been in Detriot, Boston, Buffalo, Flint, Dallas and what exists there as slums, housing projects and the like is nothing like the ones here in Toronto - I'm not a tough girl, I'm regular old middle class wasp and have walked through regent park at mid-night - in Boston a police officer told me not to even think of getting out of my car in one neighbourhood.
