Reports from local governments show that a slumping housing market is weighing on retailers in Southwest County as mortgage payments rise and home-equity loans vanish.

On the whole, the reports from Lake Elsinore, Murrieta and Temecula show a retail scene that is continuing to expand, with taxable sales growing by 3.6 percent to an annual $45.7 billion. But that growth fell short of the 5.8 percent growth in the number of residents. The combined population of the three cities grew to 243,000 as of Jan. 1, according to state figures, with Lake Elsinore seeing the largest increase.

That means individual consumers are spending less, a recent trend that an economist blamed squarely on weakness in local real estate markets. The average sale price of existing houses in Southwest County has fallen by about 7.5 percent since May 2006, from $500,000 to $463,000, according to The Californian's analysis of figures from a real estate agents' database.

As a result, fewer consumers are able to take out the large home-equity loans that were helping them buy ski boats, monster trucks and swimming pools in 2004 and 2005.

"They were using their homes as an ATM machine, and using cash from refinancing," said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange. "People sold their Hondas and bought Lexuses."

The burden has been particularly heavy in Temecula. Meanwhile, Murrieta's retail scene has just managed to keep pace with growth in population, and Lake Elsinore's taxable retail sales have grown even more rapidly, according to the reports. The most recent reports, released last week, detail the three cities' retail sales in the first three months of the year and the tax revenue that the resulting tax revenue received in April, May and June.

In Temecula, the area's retail hub, shoppers spent $2.66 billion from April 1, 2006, through March 31, 2007, about 2 percent less than in the previous 12 months, according to reports from that city. Shoppers spent $1.13 billion in Murrieta, about 6 percent more than in the year-earlier period.

While business increased modestly in most types of stores, the slowdown in the construction and real estate industries hammered home-furnishing and lumber stores. Even with the appearance of a large new furniture mall off of Los Alamos Road, the combined sales from the two sectors fell by about 12 percent in Murrieta, to about $195 million. The decline has been even more dramatic in Temecula. Adibi pointed to dwindling numbers of home-equity loans and a dramatic dropoff in the number of families moving into new and existing homes.

Teri Ferro, Murrieta's finance director, said a series of new stores in Lake Elsinore has also had a big effect, both there and in Murrieta. Lowe's and Home Depot opened large building-supplies stores off Central Avenue early last year. Costco, a membership warehouse, and Target, a discount store, have opened in the city since then.

"People who might have come from Wildomar and Lake Elsinore in the past are now staying up there," Ferro said.

The new stores helped Lake Elsinore rake in $7.84 million in its 2006-07 fiscal year compared to $6.42 million in the previous year, according to a city report. Those numbers represent the city's 1 percent share of implied sales of $784 million between April 2006 and this March, a whopping 22 percent more than in the preceding 12 months. The city's population grew by 15 percent in 2006 to 47,600 on Jan. 1, the California Department of Finance estimated.

Neither the state report nor the cities' numbers include non-incorporated areas of Riverside County.

Shoppers' dwindling numbers have also dinged most of the dozen car dealers along Ynez Road, which contribute more to Temecula's bottom line than any other type of retail business. Dealers in the city did about $220 million in business from October to March, down from about $243 million in the year-earlier period.

With sales taxes accounting for 30 to 40 percent of local governments' revenue, the housing slowdown is being felt across California, except for only a handful of fast-developing communities such as Lake Elsinore, Adibi said. Officials in Murrieta and Temecula have said conservative spending habits are helping them ride out the downturn.

"It's time to tighten the belt," for local governments that haven't done that, Adibi said. "Cities and counties should expect to see a very, very soft increase in taxable sales through the end of 2008."

- Contact staff writer Chris Bagley at (951) 676-4315, Ext. 2615, or cbagley@californian.com.