Derek Meyer dreamed of buying a sailboat and a luxury motor home when he put his three-bedroom house in Los Gatos, California, up for sale in July. He asked for US$1.825 million -- US$550,000 more than he paid in 1999.
After reducing the price five times, the 42-year-old owner of a marketing consulting company this month accepted less than US$1.4 million, a 9 percent gain in three years. He scrapped plans for the boat and cut his US$150,000 motor-home budget in half.
"Profit on paper is one thing and profit in your pocket is something different," Meyer said. "Had the house sold at the high prices, we definitely would have taken a large percentage of that extra gain and spent it."
From Los Gatos to Zurich, where home prices fell in the third quarter for the first time in three years, homeowners no longer can count on windfalls from sales of their residences to feed their spending habits. That may be bad news for the US as well as European and Asian countries banking on consumer spending to maintain or revive growth.
"You don't have the increase in wealth going on that tends to stimulate more spending" when housing prices ebb, said Lyle Gramley, senior economic adviser at Schwab Capital Markets and former US Federal Reserve governor. The result will be "slower consumer spending going forward," he said.
In industrialized countries, consumer spending accounts for about 61 percent of gross domestic product on average, according to the World Bank. In the US, consumer spending has helped sustain growth while shoppers' reluctance to buy has contributed to stagnant economies in countries such as Germany and France.
UK prices at the top end of the housing market are declining after rising every year since 1993, while average home prices in the US rose 6.2 percent last quarter from the year-earlier period, less than in previous quarters.
Demand remains robust in some US markets: In Long Island, New York, prices jumped almost 15 percent in the third quarter and they climbed 13 percent in San Diego.
Consumer spending rises as home prices increase and owners sell or borrow against the higher value. Housing prices are "very important, particularly for middle-income owners," said Ian Morris, chief US economist at HSBC Securities Inc.
"Your average Joe Blow has much more wealth tied up in housing than stocks," he said. Tip that balance, and "we've got a slog ahead of us."
UK house prices rose at an annual rate of 29 percent in November and 31 percent in October, the strongest since price growth last peaked in 1989, according to HBOS Plc, Britain's biggest mortgage lender.
Declining prices are already common in Singapore, which is trying to recover from its worst recession in four decades. In July, marketing executive Cindy Koh, 35, sold her 2 1/2-story terrace house in the Serangoon gardens area for S$1.36 million (US$778,000) about S$200,000 less than she paid two years earlier.
"A few years ago the property would have cost much more," Koh said.
In the US many homeowners refinanced their homes at lower mortgage rates, putting more cash in their pockets. The average rate on 30-year mortgages hit a 12-year low of 5.74 percent last month.
Fewer US consumers treating their homes like a cash machine may have ripple effects in other countries, because Americans may trim purchases of imports along with domestic goods.
"The US is the only game in town for global growth," said Allen Sinai, president of the forecasting firm Decision Economics Inc in New York.
Tim Calland says he won't be doing much to help the economy. He hasn't sold his home in Chapel Hill, North Carolina, after more than four months and an US$8,000 price cut to US$297,000. With his US$1,050 rent at an apartment near his new job in Connecticut on top of his US$2,000 mortgage payment, the electrical engineer has little cash left over.
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