Housing - Does it matter anymore?

A lot of macro guys seem to be looking at housing numbers very carefully. But I ask why? Is that to time the so-called next wave of defaults (ARMs, jumbo ,prime)? My guess is that housing defaults are not as correlated to price (although I think I saw one study that asserts 19% of defaults were people voluntarily walking away from underwater homes or something to that effect) but more to unemployment. Home prices are more of a symptom than a driver, although I reckon a drastic and swift plunge from here can have a severe (additional) feedback effect into the economy.

Home price, however, I think would serve as a barometer for the longer term picture of US economy. Karen Weaver of DB put it well:

The obvious takeaway of falling home prices and being underwater is what it does for defaults. But there's a bigger implication, which is that when we look at the economy over the past decade or two, it's been very much a consumer economy.

What has been driving the consumer hasn't been gains in incomes. What has been driving them is easy credit and rising home values. And the fact that their home price was rising and they could borrow against that through home equity lines or loans or refinancing, it augurs for a very different economy going forward if people don't have that option.

For many years Americans grew accustomed to using their homes as an ATM. I would say consumerism had gone wild in US to a point of a competitive sport. What happens if consumers never recover? I sure hope credit never becomes so easy flowing again. Good ideas usually get taken too far extreme until they become destructive.

Interesting point to ponder - but not very useful in terms of trade idea generation in the near term.