As we await the latest word from atop Mt. Fed, let's consider the following: Is the housing market a bubble, or a bulwark for the economy?

Judging by the reaction to Monday's

Midday Musing, many readers believe the former.

The housing market is part of a larger credit bubble, and like all bubbles "can either inflate at exponential rates or burst," according to one emailer, who cited the work of PrudentBear.com's Doug Noland. "There is no middle ground. No slow leaks."

Reflecting a view of the majority of respondents, the reader suggested the housing market will ultimately follow a similar path to that of most Internet stocks. The more recent example of credit card issuer

Metris

may be more appropriate, as housing bears believe the sector is doomed because of its dependence on an overburdened, overly indebted consumer.

But Then Again...

There is, of course, another side to the story, which suggests that if the housing market is a bubble, it's akin to the

Nasdaq

circa 1998, rather than 2000. That is, the housing market may have a lot more upside left before it falls.

Housing has played a "very central role" in the economy's resilience since Sept. 11, according to Dick Rippe, chief economist at Prudential Securities, and should continue to be a source of strength.

That role goes beyond the construction that ongoing demand for housing generated, the economist said. Strength in the housing market has offset the negative wealth effect of declining stocks, which caused a drop in the net worth of U.S. households by about 10% from its peak.

The ratio of net worth to income has also fallen, and "this could have had a very negative effect on consumers, had it not been for what housing wealth did," the economist commented.

At $12 trillion, housing assets now exceed the value of the stock market, Rippe noted. Deducting for mortgage debt, net equity in homes has reached a record high of $6.6 trillion.

Consumers can access this equity by refinancing, taking out a home equity loan or selling their home. Most gains from home sales are plowed back into the purchase of a new home, but about 10% to 15% of the $300 billion in capital gains last year were "taken out," he reported.

Perhaps the

Federal Reserve's

yearlong easing campaign, which is expected to end today, was aimed more at sustaining and aiding the housing market via lower mortgage rates than with propping up the stock market, as many presumed. No one ever said Alan Greenspan was dumb.

Rippe argued that there's no sign that the housing market -- on a national level -- is in bubble mode and thus destined to implode, although higher mortgage rates will dampen its ascent.

"It's a chicken-and-egg thing: If employment drops sharply further and income drops too, that will make it harder

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for consumers to service debt," he said. "But if employment stabilizes and people feel more comfortable, I would think housing values would be retained."

The economist believes in the latter scenario, forecasting the unemployment rate will peak at 6.25% sometime in the second quarter, a level well below peaks in prior recessions.

Bloomberg

columnist Caroline Baum recently wrote about how the combination of affordability, strong demand and low inventories all point to a yet more-robust housing sector. It's good reading for those interested in the subject.

The above may explain why homebuilding stocks such as

Pulte Home

(PHM) - Get Report

,

D.R. Horton

(DHI) - Get Report

and

Lennar

(LEN) - Get Report

have stymied the short-sellers in the past year. (

RealMoney Pro

contributor Doug Kass of Seabreeze Partners wrote last week that "there are growing signs of speculative activity in housing." But when queried today, he said the time isn't right for aggressive shorting in the sector.)

Finally, another theme among the email responses to Monday's piece was that many people have more confidence putting money into a home than into stocks. If the value of a home goes down, you can still live in it. Stocks, by contrast, provided poor shelter in the storm for the past two years and were weakening again at midday.

Maybe that explains why the proverbial "cash mountain" hasn't made its way into equities, and why the mountain might not be coming to the market, as so many bullish observers continue to expect.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.