As everybody else I believe the housing sector is key to this. If the housing sector is indeed stabilizing and the problems are isolated or 'contained' to certain areas (California, Florida), then maybe we have a chance for a shorter lived recession. That's why the Fed took drastic measurements over the last few weeks. Much of the rest of the country actually is doing fine, e.g. the area where I'm living (mid atlantic east coast); we do have a slowdown in hiring and housing, but home prices haven't declined, and I doubt they will. Exceptions are the coastal properties, which declined about 20 - 30% (after increasing 150 % over the last 5 years), but now are stabilizing. I extensively traveled to SoCal and have many friend there. Some areas are brutal, and I believe we haven't seen much of the walkouts in those areas yet. It will hit in about 9 month as the foreclosures work through the system. However with the financial sector stabilizing, and the rate cuts working through the systems (lowering cost of lending and mortgages), and much strength in the rest of the country I start to believe that this could be digested. That’s why I am cautiously optimistic. Of course I won’t be doing anything stupid and try to let the market guide me. We’ll see where she leads us.
I, of course, hope you are right. I guess what keeps me skeptical is that hardest hit states in terms of a bursting housing bubble, California ($1,727 billion), Arizona ($232 billion), Nevada ($117 Billion) and Florida ($713 billion), made up 21% of the US economy in 2006 (used the economy section of Wikipedia for each state to derive that number). It is hard for me to see how serious economic upheaval in those four states wont have some sort of spill-over effect on the remainder of the US economy.
Add to that the fact that mortgages are harder to come by today as lenders return to 20 year old lending practices and it suggests that we may be further away from a bottoming of the real estate market than we would like (I was reading this morning that several major mortgage insurers have black balled entire regions of the country, making it hard to get mortgage insurance and thus freezing out buyers that do not have 20% to put down on a home).
Again, I hope you are right but there are some huge macroeconomic factors to contend with right now.