Housing's Roof Won't Cave In

Homeowners may well spend through the slump. With builders, lenders, and realtors slashing jobs, the housing bust is a serious drag on the economy. But there's a case to be made that despite the weakness in home prices, homeowners will keep spending enough to keep the economy on solid ground.

Here's the bullish case for the American consumer: First, people have new sources of spending money from rising wages and salaries and a booming stock market. Second, the drop in home prices so far has been small. And third, even if there is a big hit to housing wealth, research suggests that consumer spending may not drop. Builders have borne the brunt of the slump by cutting the supply of new homes. Their cutbacks are keeping the growing backlog of unsold houses from getting completely out of control.

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