April 27 (Bloomberg) -- Carol Francis says her customers are less likely to make big furniture purchases these days than they were at the height of the housing boom two years ago.
``The housing market right now is affecting everybody's spending,'' said Francis, a design consultant at Thomasville Home Furnishings in Woodbridge, Virginia, 25 miles south of Washington. Before, ``I had people who would buy two and three bedrooms of furniture. Now many come in and just buy one piece at a time.''
With home prices in danger of falling this year for the first time in at least four decades, Americans are turning wary about borrowing against their houses to pay for vacations, education or remodeling projects. In a reversal of the ``wealth effect,'' people who once viewed soaring home values as a rationalization for higher spending appear to be pulling back.
``We're in a housing recession; it's not over and it's going to spread to other parts of the economy, mainly consumer spending,'' said Paul Kasriel, director of economic research at Northern Trust Securities in Chicago.
``House prices are going to continue to fall, and that's going to play havoc with consumers because it means the home ATM is now draining, it's no longer filling.''
While home sales and construction have been falling for more than a year, the secondary impact on consumer spending, which accounts for 70 percent of the economy, may just be kicking in.
Kevin Logan, senior market economist at Dresdner Kleinwort in New York, says the reverse wealth effect will subtract about 0.7 percentage point from consumer-spending growth this year. He expects spending in the fourth quarter to be 2.7 percent higher than a year earlier, compared with growth of 3.6 percent in the fourth quarter of 2006.
The first quarter may have been the consumer's last fling. The Commerce Department reported today that personal consumption grew at a 3.8 percent annual rate in January through March. Spending growth is projected to slow to an average 2.5 percent annual pace in the last three quarters of 2007, according to the median estimate of economists surveyed this month.
Francis, 44, said the housing slump has prompted her to change her own home-remodeling plans. ``It does affect me,'' she said. ``I've slowed the renovation work.''
She says furniture sales have been weakening for more than a year. ``A lot of people bought houses at a time when they were making $200,000, $300,000'' on the sale of their previous homes, Francis said. Now, they have ``these big, beautiful homes, but there is no meat in the freezer.''
Some homeowners are strapped as their mortgage payments increase after low ``teaser'' rates expire.
