Home equity could buoy the economy

But Nguyen, 31, is feeling confident. Though he figures his home's value fell at least $40,000 during the last year, he gained $200,000 in equity during the five-year boom. Thanks to that equity and his earnings as a project manager at UnitedHealthcare, he's qualified for a conventional 30-year fixed-rate mortgage on a $750,000 house he hopes to move to in Orange County after he sells his current home.

"It's at a good state right now," Nguyen said of the housing market. "It didn't completely crash on me."

Analysts say the U.S. economy won't completely crash either as a result of the sub-prime mortgage meltdown, thanks in part to homeowners like Nguyen. Their home equity built up during the boom is among several factors that could support consumer spending and the housing market.

Many other sub-prime borrowers aren't as fortunate as Nguyen and are expected to lose their homes, unable to make mortgage payments. But they are not a big enough part of the overall housing market to harm the entire sector, experts say.

So although failing sub-prime mortgages are likely to slow consumer spending and overall economic growth, they aren't expected to provoke a broader credit crunch or tip the economy into recession -- barring severe disruptions, many analysts say.

"Housing has always sort of been the canary in the coal mine for the economy -- it tends to turn down before the rest of the economy. If you were just looking at this indicator, you would say recession is here, but I think there's enough offsets and optimism to keep the economy out of recession," said Dirk Van Dijk, director of research at Chicago-based Zacks Equity Research.

Among those offsets are relatively low interest and mortgage rates. Although the Federal Reserve is expected to keep its benchmark short-term interest rate unchanged today, it could signal that it is concerned about the slowing economy and housing woes, some economists say. That could lead the way for the central bank to lower rates later this year, which could help ease the housing slump.