Now, neither Joe Homeseller nor his realtor is checking the status of the ABX market and basing his selling prices on how it moves.

So I think some analysis is in order here: what does this mean for the day to day housing market and when will the impact be felt?

Playing amateur economist (and inviting others to do the same) I think it means that the business model for most lenders- to cheaply package loans and sell them for a big profit on Wall Street- is done. No sane investor is touching mortgage bonds for a while- at least not until there is some confidence that they know what they are really buying. Wall Street moves in herds and the herds are running from anything mortgage related.

So just when more people need to re-finance or find a willing buyer, the mortgage lending market is in a new level of chaos. Easy money being cut off just when its needed to keep things from getting worse.
Demand for homes further reduced, supply of homes further increased.
It does look like the perfect anti-bubble storm is brewing. We might want to remember- “be careful what you wish for”