Where will the housing slowdown hit hardest?

The end of the housing boom, which is apparently now underway, is arguably the biggest risk to

the US economic outlook over the next couple of years

. In previous Focus pieces we have argued

that even a benign end to the boom, in which house prices simply level out at the national level

rather than fall, could generate a severe slowdown in consumption and residential investment. As a

consequence, we expect GDP growth to slow to 2.0% in 2007, from 3.0% this year. There is even a

risk the economy could slip into recession.