“For starters, home prices are not falling everywhere.  The declines currently being reported in some national price indices largely reflect substantial drops in home prices in a handful of markets, where prices soared earlier in the decade, and more modest gains in most other markets.  Prices are still rising in markets where 65 percent of the U.S. population lives.  Even if home prices do drop, we have had experience with the wealth effect before and the impact was far less dramatic than widely feared.  The bursting of the NASDAQ stock market bubble in 2000 and sell-off in the broader stock market triggered a $5.4 trillion dollar loss in household wealth between the first quarter of 2000 and the third quarter of 2002.  During this period, consumer spending slowed relative to income growth and the saving rate rose. 

In order for the housing slump to produce the same loss of wealth today that the stock market crash did earlier in the decade, we would need to see a 20 percent drop in home prices nationwide. 

(from WACHOVIA annual outlook , December 17, 2007)