Mum Kathy Olafson was yesterday still in shock from the knowledge that her four children and two friends, aged six to 12 years, were just centimetres from harm.

The accident also left the Dapto single mother without a car and possibly a home.

The collision occurred at 7pm on Friday when a 28-year-old Koonawarra motorist lost control of his Ford Falcon utility as he was driving along a lane opposite the house.

Lake Illawarra police Inspector Steve Agius said the ute veered into the driveway of Ms Olafson's Mulda St address, the impact causing her parked Mitsubishi stationwagon to become airborne and land between her home and that of a neighbour.

"Both vehicles have become wedged between the two houses," Insp Agius said.

The male driver and his 32-year-old passenger from Penrose were trapped.

Rescue crews worked for 45 minutes to free the driver.

Both men were taken to Wollongong Hospital with neck injuries.

The driver was released on Saturday while his passenger remains in hospital.

Ms Olafson said her children - Laura, 12, Ashley, 10, Lachlan, 8, and Erica, 6 - and two friends who were visiting for a sleepover, were lucky not to have been hurt.

"The kids were in the living room, playing with the PlayStation," she said.

"Suddenly there was this horrendous sound, like a wind tunnel, and a terrible crash that shook the house. The kids started screaming - they were terrified.

"I went to the lounge room, there was just a shower of plaster with the kids huddled in the middle and I thought we'd had an earthquake.

"Then I went out the front door and saw what had happened."

Mrs Olafson said the impact of the accident had shifted her 40-year-old home, which she rents from her father, from its foundations while separating the roof from the cornice and walls.