First, go and read this article on Yahoo about home prices continuing to fall due to foreclosures.
Let's say you're not in a metro area covered by Case-Shiller's index of home values. You are OK with your present mortgage and don't plan to buy or sell a home any time soon. Your house may be presently worth less or more than recently. Why should you care about falling home prices?
The short answer is that falling home prices represent a contraction in the quantity of dollars that are out there. This is known as deflation. Deflation can initiation a self-propagating cycle where bad economic outcomes breed more bad economic outcomes. A so-called deflationary spiral is what put the "Great" in Great Depression.
What else may this mean?
That depends on what the Federal Reserve will do to the quantity of money in circulation. If they do nothing, this deflationary pressure will continue to weigh down the economy and forestall any kind of serious recovery. The upshot to this is that it will suppress the growth in prices, making gas less likely to hit $5 or more.
What the economic data is saying is that we have way too many houses for current needs, and no enough oil. That's what crashing home prices and spiking oil prices mean.
What is the Government's response to this? First, they try to keep people on their homes and delay sorting out the true home price situation. Then they try to foist the losses on the banks rather than on the people who are not paying their debt. Because so many people never built any equity in their homes, they have little to lose from walking away. So they do-- time and time again, setting off a chain reaction wrecking ball that is destroying neighborhoods in some areas.
Simultaneously, the Government continues to suppress the production of oil and subsidize less efficient energy sources. Production off Federal lands is down yet again. The Obama administration has slowed permit approvals and done all it can to inflate the price of oil (as was the stated goal before election).
The Federal reserve could do something to help the economy get rolling again, but why bother when the Government is acting to suppress the economy? Only a new Administration possessing a modicum of economic understanding can set our economy on a better path.