Low mortgage rates trump the job market during recessions. The last recession was in 2001 and the Fed was cutting rates and mortgage rates were falling. Home sales then began to rise strongly.
Past deep housing recessions were accompanied by prolonged job losses and rising interest rates. We have falling interest rates today.
The economy added about four million jobs over the last two years. Household formation is about half of what it should be given the employment growth, which indicates that many buyers are sidelined right now.
When the housing market begins to recover, this usually signals the start of an economic recovery.
Today's low interest rates will lessen the pressure on foreclosures. Rising affordability assures higher home sales and home prices. Furthermore, low rates lessen the burden on existing homeowners with ARMS because the resets are not as financially painful.
The bottom line -- We have historically low interest rates and we will likely avoid recession (but the economic expansion will be slow in 2008). The high interest rates that have characterized past recessions are nowhere in sight.
Information from the National Association of Realtors
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