Last time I looked, people who know better than I do were insisting that the housing boom would never lead to anything worse than a mild correction, a "soft landing" that would do minimal damage to the economy. The New York Times Magazine was running a long cover story assuring us that Toll Brothers, a large nationwide home builder, will be awash in money forever, while the head of Toll Brothers said that our children will be paying even larger percentages of their income to buy houses, and will be getting less house in the process.

Hmmm. A couple of weeks after that story ran, Toll Brothers announced that it expected decreased demand for houses in 2006, and its stock fell 11% in one day. And now, all of a sudden, Associated Press seems to have discovered a lot of people who think the end of the boom could be a bit nasty:

Much of the nation has had a lovely real estate boom for the past five years, but the house party is almost over and the cleanup won't be pretty.

That's the word from economists and investors who have watched housing prices march ever higher.

...If housing prices decline sharply, the effects could be broad. Lehman [Brothers] estimates one-third of the past year's U.S. economic growth was a consequence of the housing boom. Housing construction is equal to 5 percent of the national economy.

A downturn in housing could mean more than 1.3 million lost jobs, Goldman Sachs Group Inc. predicts, bumping up the national unemployment rate by 1 percent and the unemployment rate in house-mad California by 2 percent. Those numbers don't include likely job cuts in housing-dependent businesses, such as banking, furniture and building materials.

The Center for Economic and Policy Research predicts worse, saying a bubble burst would mean the loss of 5 million to 6.3 million jobs.

...A final nightmare scenario: A federal bailout of the mortgage market is likely if housing crashes, the center predicts. So, if corporate pension funds continue to falter and this dire prediction does come true, the Feds could conceivably be holding your mortgage and your pension.

Here's the most sensible-sounding take on this I've encountered:

...The supply and demand picture for housing looks out of whack. For six straight months, ending in September, builders started work on more than 2 million new homes. This has only happened three other times in the postwar period, according to Merrill Lynch: 1971 to 1973, 1977 to 1978 and early 1984.

Those periods were fundamentally different from today in at least one respect: More people were forming households. Household formation is the growth rate in the number of households and it's boosted by new immigration and twenty-somethings leaving their parents' homes. It is currently half what it was for most of those peak periods.

"At no time in the past three decades has the gap between household formation and housing starts been as wide as it has been over the past 12 to 24 months," [Merrill Lynch economist David] Rosenberg wrote. "We've become accustomed to hearing about how housing is in a new paradigm, that the fundamentals are sound, so on and so forth. But please, just don't tell me that the sector has managed to divorce itself from supply and demand realities."...

There just aren't enough people moving out of their parents' basements (or moving to America and earning middle-class incomes) to sustain this boom.

So heads up.