Several factors, though, suggest that the current housing downturn may not drag the wider economy into recession:
• It usually takes more than just a housing contraction to cause an economy-wide recession. Although construction and home sales have often preceded past recessions, some other factors – a drop in government spending on defense, a jump in oil prices – have also contributed to a wider slump.
• The Federal Reserve is learning more about what it takes to guide the economy to a "soft landing." The Fed's goal is to remove inflationary pressures from the economy while not causing a recession by squeezing the credit environment too much.
As in the past, interest-rate hikes by the Fed over the past two years have cooled the housing market. The policymakers have stopped raising rates for now, watching to see whether they can thread the needle just right. Often past efforts have failed, but most economists think the Fed will avoid causing a recession this time.
• The market for home mortgages is very different than in 1990, when the last big housing crunch occurred. Now, when people get a mortgage, the loan generally doesn't stay with the bank that originated it. Instead, loans are packaged in bundles and sold to investors who reap the stream of monthly income from homeowners.
The upshot: The housing market's risk is diffused more widely, so banks face less pressure to cut back on lending during housing downturns.
"One of the important developments on the capital markets since the mid-1980s is securitization" of loans, Mr. Yardeni says. In this housing slump, banks are still lending, and their stocks are doing well on Wall Street.
• While the housing downturn is steep, its effects on consumers may be smaller than many fear. Surging home prices have added trillions of dollars in wealth to homeowners. That won't all be wiped away by a 3.5 percent decline in home values, or even by a 10 percent decline, which some forecasters say is possible.