The housing cheer-leaders say that spending is strong, job creation is strong, the US economy is flexible, and also that this isn't a housing bubble, it's a valid correction based on high demand for limited space. First of all, the valid pricing idea is nonsense. We haven't suddenly run out of land. Housing prices haven't changed significantly in the last 50 years and suddenly there's a huge shortage? Every time in the past that housing has shot up it's crashed back down to almost zero change inflation-adjusted.
The reality is that consumer spending has been powered by housing (the saving rate has been negative indicating people are taking loans against their houses). 33% of job creation since 2001 has been in housing or related fields, and perhaps even more so due to the trickle-out effects. Even despite that real spending power has decreased and we haven't actually cut unemployment. More and more people are not even showing up on the unemployment numbers because they're not seeking employment. Furthermore, our government has been desperately doing everything it can to stimulate the economy - interest rates have been rock bottom low, we severely cut taxes, both of which should have been huge short-term boosts to the economy, and have only just kept us at a sustaining growth rate (our GNP has to grow several % a year just to match population growth). The government's been doing massive debt spending, which again should stimulate short term growth and generally leads to constrictions later on.
We're now in a position where we can't really do too much more for stimulation. If housing does start to lead us to recession, our vault of reserve measures is depleted, we can't keep lowering interest rates, spending on debt, cutting taxes.
Anyway, as I've written before I'm still not sure how to play this. I do have a lot of money overseas already but maybe I should move even more.