With traders around the world on vacation (or otherwise taking it easy) this week, the impact of housing reports will be magnified because liquidity is missing from markets.

Since mid-Summer, the Fed has repeatedly told us that housing will lead to an economic slowdown.  As a result, markets have placed housing under a microscope and this week features two key housing releases -- New Home Sales and Existing Home Sales.

To understand why housing is an economic lynchpin, just think about the last time you bought a house.  What sort of purchases did you make that you wouldn't have made if you hadn't moved? 

Here's a small sample of what my family bought in the wake of our last move:

• Television(s)
• TiVO
• Stereo system
• Cabinets
• New doors for the patio
• Blinds/Shutters and window dressing
• Furniture
• DVD player

And, nevermind the 1,000 trips to Home Depot.  There is more that I could add to this list, of course, but it's a good sample.

If we hadn't moved, we would have never bought those items and our dollars would have "stayed out" of the economy.

Like most people, when we moved, we took residence in a larger home with more space, more rooms and more need for decorating.  All of that spending pumps money into the economy and keeps it growing.

So, each time that the Fed's members say that they expects housing to create an economic slowdown, what they are really saying is that because fewer people are buying homes, there will be less propulsion in the economic engine. 

Understandably, markets pay close attention to housing data because they now believe that housing will give clues about the economy's direction in 2007.

When housing news crosses the wires this week, there will be fewer buyers to match with sellers, resulting in price volatility.  As a result, mortgage rates may dance like Elaine with all sorts of herky-jerky movements.  That's the way it goes when the whole world goes on vacation -- the lack of liquidity leads to the absence of smooth pricing changes.

It could be a wild ride, but mortgage rates will remain in a tight range.

Sweet fancy Moses.

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Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.