by Calculated Risk on 3/21/2007 12:49:00 PM

"Housing has always sort of been the canary in the coal mine for the economy — it tends to turn down before the rest of the economy. If you were just looking at this indicator, you would say recession is here, but I think there's enough offsets and optimism to keep the economy out of recession,"
Dirk Van Dijk, director of research at Chicago-based Zacks Equity Research.

This LA Times article lays out the more optimistic view that the housing slump will not take the general economy into recession. A few excerpts from Molly Hennessy-Fiske at the LA Times: Home equity could buoy economy

Analysts say the U.S. economy won't completely crash ... as a result of the sub-prime mortgage meltdown, thanks in part to homeowners ... home equity built up during the boom ... that could support consumer spending and the housing market.

Click on chart for larger image from the LA Times.

Many ... sub-prime borrowers ... are expected to lose their homes, unable to make mortgage payments. But they are not a big enough part of the overall housing market to harm the entire sector, experts say.

So although failing sub-prime mortgages are likely to slow consumer spending and overall economic growth, they aren't expected to provoke a broader credit crunch or tip the economy into recession — barring severe disruptions, many analysts say.
...
One of the biggest concerns is that the sub-prime meltdown will result in a surge of foreclosures that in turn will sink home prices and trigger a housing-led recession.

But sub-prime foreclosures will be only a small percentage of total foreclosures and thus "will not break the national economy or the mortgage lending industry as a whole," said Christopher Cagan, director of research at First America CoreLogic, a Santa Ana-based real estate analysis firm.

I'll look at the First American report later this week.