By Jonathan Lansner, The O.C. Register

The bubble doesn't have to burst in spectacular fashion for housing to inflict economic pain.

The much-discussed "soft landing" – where home appreciation moderates down to historical norms, or slightly lower – may create heartburn in the business climate.

This year, the local housing market has started off slowly. Prices are still at last August's level. And sales activity hasn't been this sluggish since 1997. Forget the doomsday predictions of a market in a downward spiral. Just imagine how difficult it could be for the economy to thrive in what some might call a normal housing market.

Remember that in Orange County we've witnessed nine straight years of housing appreciation, by DataQuick's count. The past six years produced double-digit percentage gains. Those addictive profits helped slip the economic disaster of the mid-1990s into this town's relatively unparalleled financial success.

Unemployment is almost as low as it gets for a big metro region. And cash registers have rung merrily at retailers of all stripes.

Land profits aren't just for homebuilders or real estate investors. Everyday folks have reaped rewards in several ways. Most notable: Borrowing against the profits in their home.

For example, 72,000 Orange Countians last year took out $6.1billion worth of home-equity loans, according to DataQuick. Curiously – and a possible sign of a slowing real estate market – that's down from 88,500 equity loans worth $7.2billion in 2004.

The cold cash generated by real estate isn't the only thing that's let consumers shop until they drop. It's that perception of housing wealth that's allowed them to spend freely.

As a nation of consumers, we spent more than we made in 2005 – the first deficit for personal savings since the Great Depression.

Investment strategist Michael Pento from Delta Global Advisors of Huntington Beach thinks numerous people use housing profits - real or perceived – as an excuse not to build nest eggs for kids' tuitions or retirement or the like.

"It's become entrenched in consumers' thoughts that housing markets will continue (higher),""Therefore, consumers think: 'I don't have to save as I did in the past.'" Pento says.

WICKED REVERSAL?

The bond traders at Pimco in Newport Beach worry for a living.

And while they don't think home prices will collapse – well, outside of a few overheated markets – they think shrinking housing profits will have far-flung economic consequences.

A recent economic outlook by Pimco's chief business-climate watcher, Paul McCulley, essentially said housing will drive the national picture.

And, he said, "property market euphoria will not go quickly and quietly into the good night, but rather on the installment plan, with much screaming of denial. ... Collectively, we believe the end of denial is rapidly approaching. But none of us can say with confidence whether the end will come in the next three weeks, three months or three quarters. But the end of the housing boom will come soon, we think, and when it does, sales volume in the property market will reverse wickedly."

Scott Simon, Pimco's mortgage guru, has spent considerable effort trying to gauge the risks in the nation's housing markets. Pimco doesn't want to own mortgages that won't get paid back.

Simon doesn't see widespread home-price declines, but in places like Orange County, years of fat appreciation "definitely puts a lid on how much you can go up from here."

Pimco's anxious about the end of hyper-appreciation. Simon suggests that simply a return to modest home gains – 5percent a year – could result in 25percent fewer home sales across the nation.

That would mean 2million fewer transactions. That's 2million fewer households looking for "a new barbecue, needing to buy paint, or buying a stereo, a plasma TV or a refrigerator" for the new home, Simon says. It's shared economic pain.

"Nationally, you'll see a drag," he says.

HISTORY LESSON

Let's not overlook the financial clout that the real estate business has in this town.

By my math, real estate of all sorts – from lending to building to brokers to swabbing the floors of office towers – employed 253,000 in the fourth quarter of 2005.

That's up almost 80percent since 1995. The boom turned the real estate community, so to speak, into 17percent of all workers employed in Orange County. That is real estate's highest share of local employment in the state's modern job counts that date to 1990.

Say what you want about the future stability of real estate work – and the wealth those jobs created. Fortunately for the county's economy, this work rebounded from the early 1990s slump.

Manufacturing jobs clearly did not.

Back in 1990, there were roughly as many folks making machines and electronics of all sort in this town – in so-called "durable goods" factory jobs – as there were people profiting from the then-cooling real estate market.

Today, Orange County real estate businesses employ practically twice the work force of bosses running factories that make everything from plane parts to computer chips to industrial measuring tools.

The last time this town got into serious economic trouble, manufacturers took it on the chin. In the five years ended in the first quarter of 1995, local hard-goods factories lost 41,300 workers – a 24percent drop.

Many observers suggest that this factory rout – propelled by harsh cuts in Pentagon spending on military hardware – was a critical cause of local housing's woes. From 2000 to 2005, the median price of an Orange County home fell by 10percent to $194,000.

But real estate job losses played a significant role, too. From 1990 to 1995, local real estate lost 29,700 – nearly three-quarters the loss at local factories.

That amplified the pain that defense cuts put on this town.

Today, real estate employs 110,000 more folks than it did near the bottom of the last housing cycle. That's roughly one in four jobs added to the overall economy since those ugly days.

If real estate simply stabilizes at current levels of activity, as some observers guess, the loss of the wealth created by home appreciation and related employment growth will be dearly missed.

Anything worse for real estate could be a severe economic body blow.