And I think you're arguing that the disappearance of mortgages would have no effect on real estate prices. IMO, and that of many others, loose credit has been the major factor driving up property prices to their current insane heights.
There's a place for credit, but right now I think it does more harm than good.
On the contrary - no mortgages would mean I couldn't afford a house, and someone richer than me would buy it and loan^H^H^H rent it to me. They'd get richer, and do the same to the next person who couldn't quite afford to buy a house. You've described a society closer to feudalism than efficient housing.
There's a place for credit, but right now I think it does more harm than good.