Here's what Dean Baker had to say in 2006:
The decline in housing prices will sharply limit the extent to which people can borrow against their home to support their consumption. This will cause savings to rebound from their current negative rates to more normal levels—at 6 to 8 percent of disposable income—but will be associated with a sharp falloff in consumption.And Bubble Meter:
Together these effects virtually guarantee a recession, and probably a rather severe recession. Even worse, there is no easy route to recovery from a recession that results from a collapse of a housing bubble...
The crash and post-crash world will not be pretty. Millions of people will lose their jobs and their homes. Unfortunately, the economists who led us down this path are not likely to be among the ones who suffer severe consequences.
Simply put, there are too many things that are unsustainable in the US economy. As the housing market continues to decline, it will push the US economy over the tipping point and solidly towards a recession.Don't you hate it when bubbleheads are right? —Early, but right.