Continued fallout from a deflating housing market is biting deeper into North County consumers and retailers, raising new doubts that other sectors of the economy will be able to stave off a recession, according to economists and a series of recent sales reports.

Sales of new cars and trucks, which typically account for more consumer spending than any other type of product, almost certainly fell again in 2007. Spending on furniture and other home-related items began falling in late 2006, a trend that one business owner in the industry says appears to have accelerated through the end of last year. Even the Christmas season, normally a bright spot for shopping centers, provided only a dim twinkle, according to an industry report last week.

Though consumers have come to account for 70 percent of the U.S. economy in recent years, they haven't provided much cause for optimism recently, either in North County or elsewhere, said George Whalen, chief executive of Retail Management Consultants in San Marcos.

"Retail employment has suffered badly over the last couple of months," Whalen said. "If consumers cut back the way it looks like they will, it will help fuel a recession."

Rising home values allowed San Diego-area homeowners to tap growing home equity from the mid-1990s through 2006 and go on a decade-long shopping spree.

Though the regional economy has kept unemployment low and salaries creeping upward in the last year, the home-equity trend has reversed. After increasing by more than $2.4 billion in 2004, the total value of the region's houses and condominiums shrank by nearly $1 billion last year and will probably do so again this year, said Marney Cox, chief economist for the San Diego Association of Governments.

Living in a smaller ATM

That is leading the region's consumers to cut back, according to Whalen, Cox, other economists and homeowners.

Taxable sales in San Diego County came in at about 2.4 percent lower in the last six months than in the second half of 2006, according to preliminary figures a state tax agency provided to Cox's association.

"The change in home equity and the decrease in the available value -- it certainly cuts down on your spending a bit," said Matt Remnek, who bought and furnished his house in San Elijo Hills in early 2004 with gains from the sale of his home in northern San Diego's Scripps Ranch development.

"I wouldn't buy the same television today," Remneck said. "I wouldn't buy the same couches today."

Remnek's neighbors have enjoyed some of the biggest equity gains in San Diego County since 2001 when the first houses in the master-planned community were built, though they've also watched equity vanish much more quickly since the market turned in 2006.

The typical three-bedroom home in the 92078 ZIP code, which includes most of San Marcos south of Highway 78, sold for about $350,000 in the second half of 2002.

That figure rose to about $600,000 in the last six months of 2006 but fell back to about $505,000 late last year, according to the Sandicor/Tempo multiple-listing service that local real estate agents use. Prices in most other inland communities have followed that trend, albeit less dramatically, while appreciation in many coastal neighborhoods has merely flattened out.

Numerous residents interviewed last week said North County's home-price roller coaster hadn't led them to vary their spending habits over the last few years. Several said they refinanced homes to consolidate other debt, including student loans, car loans and credit-card balances.

But many others said they and their neighbors had used small home-equity loans to install a swimming pool or landscaping, features that generally add value to a house.

Still others said they had watched neighbors borrow against growing home equity to buy luxury cars or otherwise upgrade their lifestyles. Many of those neighbors fell into foreclosure or sold their homes and moved to lower-cost areas after struggling with the resulting mortgage payments, they said.

Taking gains, taking care

Several economic studies have concluded that a $100,000 increase in home value leads to an average increase of about $6,000 in consumer spending, Cox said.

That proportion is roughly accurate for San Diego County, Cox said. About one out of four homeowners has borrowed against newly available home equity to finance either home improvements or other consumer spending in the last seven years, and those borrowers used, on average, about one-fourth of what was available, Cox said.

Two doors down from Remnek, a couple paid $658,000 for their house in June 2004, then borrowed $66,000 against it later that year and an additional $113,000 in March 2006, according to one database of public property records in Southern California.

While such loans are still available to homeowners with substantial equity, they're being used less aggressively, according to figures compiled by First American CoreLogic, a mortgage research company: San Diego County homeowners with open lines of credit had drawn just 19 percent of the value of their homes in October 2007, down from 29 percent in August 2004. While that's often a smart move in terms of personal finance, it also takes some steam out of local consumer spending, economists say.

A continuing slide in the number of home sales is also taking its toll, homeowners, business managers and economists said last week, since a home buyer often spends several thousand dollars furnishing and redecorating. The number of home sales in North County fell from more than 11,000 in 2005 to just under 7,000 last year, according to the HomeDex report last week, prepared by Robert Brown, an economics professor at Cal State San Marcos for the North County Association of Realtors.

Foot traffic

The evidence of all that is showing up in the empty parking spaces in front of several types of businesses, even as the region's freeways remain jammed with luxury cars commuting to high-paying jobs. Sales of home furnishings and building materials began to slacken in late 2006, according to several cities' reports of sales-tax receipts.

President Ed Kruger of WestCoast Flooring Center said the market for home improvements eroded rapidly over the course of 2007. Kruger said the company's showrooms in San Marcos, Encinitas, and Chula Vista and a spun-off flooring business in Temecula have lower sales figures even than last summer, as fewer customers undertake home-improvement projects.

"It's a pain," President Ed Kruger said. "There's people going out of business right and left already."

For car dealerships, too, 2007 was almost certainly another year of fewer sales and lower profit margins, according to city and industry reports. The region was on track for about 139,000 new-vehicle registrations, based on a January-to-November report published by the New Car Dealers Association of San Diego County. That figure has fallen every year since peaking at 163,000 in 2004, when the region's home values were increasing most dramatically.

Sales at Brecht BMW are off by 5 percent to 10 percent, but only among vehicles priced under $40,000, co-owner Tom Brecht said. That corresponds to the housing market's turmoil, which has affected entry-level and midrange dwellings, whose prices depend more often on buyers who finance most or all of the purchase price, Brecht noted.

Data from a wider slice of the retail industry last week weren't much better: The International Council of Shopping Centers reported that revenue at U.S. stores open a year or more grew by less than 1 percent last month from December 2006, an increase that roughly mirrors San Diego County, local economists said.

Saved by salaries

Any recession would probably have mild effects locally, Whalen said, because San Diego County's economy remains solid in most respects. For one thing, it has diversified considerably since cutbacks in the aerospace and defense industries sparked a recession in the mid-1990s.

A state agency estimated the local unemployment rate in November at just 4.8 percent, only slightly higher than a year earlier. And the region's average weekly wage increased to $930 in March 2007 from $752 in March 2001, according to the most recent report from the U.S. Bureau of Labor Statistics.

The average annual increase of 3.6 percent has kept workers just ahead of inflation in the region, which has averaged 3.4 percent since 2001.

Home values notwithstanding, those wages have always been consumers' main source of funds, Whalen said.

"Throughout past recessions, consumers have really kept the economy alive," he said. "I don't see consumers stopping their spending. They'll be judicious in their spending. They'll be cautious in their spending. But they're not going to stop spending."

Contact staff writer Chris Bagley at (760) 740-5444 or cbagley@nctimes.com.