As we zip up our jackets for a long winter, national housing stats released over the last two weeks have shown weakness, finishing up with NAR’s [Pending Home Sales Index [MW]](pending home sales index), which showed a 1.1% drop from the prior month and a 13.6% drop from the prior year in the number of contracts signed.
Rather than merging together opinion (hint: using the zipper analogy), economists’ interpretation of the housing slowdown’s impact on the economy has been relegated to two different camps and the void between them is growing (sort of like the disconnect between buyer and seller right now):
The pessimistic view:
The housing downturn will dry up equity withdrawals causing consumers to pare back their spending and since the economy is 70% consumer based, this spells trouble next year – in other words, a recession.
The less pessimistic view (not to be confused with the optimistic view – still trying to find it as of post time):
Total net worth is more important than housing net worth. Business will take the baton and some of the pressure off the of consumer, thereby tempering the economic downturn.
According to Cross Profit :
(1) a housing recession has begun
(2) the housing markets are likely to remain weak for an extended period of time
(3) the overall economy should be able to avoid a full-scale recession but below-trend economic growth is likely to persist through late 2007
(4) the Federal Reserve is likely to ease in the spring or summer of 2007
The “two camp” phenomenon has applied to economists covering the overall economy as well. Liz Rappaport writes in her Between Goldilocks and Recession [TheStreet.com] :
In light of Wednesday’s weaker-than-expected manufacturing and construction spending data, a slew of economic indicators that began with Friday’s 1.6% reading of GDP have pushed traders and economists into distinctive camps: Those who believe in the soft landing are on the defensive, while those who’ve called for recession all along are feeling rather prideful and puffed up.
Yet there is even some discussion that lower economic growth this quarter suggests higher growth in coming quarters. As Caroline Baum, in her article Economy Robbed Peter to Pay Paul? I Doubt It [Bloomberg] 
Why? I know of no law of nature — or economics, for that matter — that says growth is a fixed pie, to be divvied up among quarters on a random basis. According to that logic, growth stolen from one quarter shows up in the one that follows. A strong quarter borrows growth from the subsequent one, which is destined to be weaker.
Housing, like the economy, is not a zero sum game and both sides won’t agree on housing’s ultimate impact on the overall economy or vice-versa, so…zip it.