The housing market will likely make or break the U.S. economy this year. Housing is both a significant component of GDP — construction and housing related services account for roughly 17% of U.S. GDP. It’s also a huge driver of consumer and bank confidence. Americans have a lot of their wealth tied up in housing — so rising real estate values make people feel richer and spend more. At the same time, banks make a lot of loans (e.g. mortgages) that are backed by real estate — healthy housing markets make banks confident that they will be repaid one way or another and encourage them to keep lending more and more.
Thus, housing markets drive both consumer spending (rising net worths encourage spending) and credit growth (rising collateral values stimulate lending).