I think the link is not so much causative as correlative.
Lower stock prices harm the economy, and when the economy is harmed home prices drop.
So stock prices do have a causative effect on the economy, there link is not DIRECTLY causative to home values. Sometimes, some other asset class is waiting in the wings (a la 2001).
One other note regarding rent vs. buy. Even in markets outside of california, a favorable rent vs. buy is not enough to buoy the market.
In MN (probably in NV too, but I have no anecdotal evidence there) homes can easily cash flow. My friends who have bought in the last 2 years are still underwater even though they can cash flow their home. Psychologically it helps them stay current, but it is still interesting to note.
