(Agencies)
Updated: 2008-03-18 10:34

Some 700 miles further north, in Cleveland, Ohio, Mark Seifert of nonprofit East Side Organizing Project says counseling stricken borrowers means telling them harsh truths.

"We get home owners coming to us in trouble, but then we look and see they have only make $50,000 a year and yet they own an Escalade," he said, referring to a Cadillac sport utility vehicle that sells for about $55,000. "And you have to ask them 'What on earth were you thinking?"'

As the US housing crisis deepens, many more Americans will be forced to budget to avoid foreclosure, with serious implications for an economy teetering on the brink of recession.

"This is going to take a bite out of consumer spending and is an ominous sign for the economy," said University of Maryland business professor Peter Morici. "We are in a recession that was manufactured on Wall Street by the major banks."

BACK TO BASICS

One of the hallmarks of the recent property boom was that buyers could get into a home with little or no money down. Those days are apparently over.

"What we're seeing a lot of is people with good income who haven't put any money aside and now have to save for a deposit on a home," said Van Johnson, president of the Georgia Association of Realtors. "When people like that don't spend, restaurants and retailers suffer and it tends to slow the economy down."

"There will be pain in that correction," he added.

Terry Kibbe of Washington, DC-based nonprofit group the Consumer Rights League -- which is campaigning against any form of government "bailout" for banks or borrowers -- said that higher down payment requirements are a natural consequence of the excesses of the boom years.

"The real estate boom was not going to last forever and it is becoming more difficult to buy a home," she said. "But the market will correct itself and this is part of that process."

There are already signs that American consumers are "trading down" in the search for bargains, with February same-store retail sales showing customers favoring discounters like Wal-Mart Stores Inc over higher-end retailers.

Merrill Lynch's Rosenberg said that in the fourth quarter of 2007, Americans' household debt almost equaled 140 percent of their after-tax income and that they were spending 14.3 percent of their after-tax income paying down that debt.

"Simply put, that means Americans are spending more on servicing their debt than they do on food," Rosenberg said. "This is not just affecting stressed-out or soon-to-be-foreclosed home owners. This hurts everybody."

Rosenberg predicted Americans will start saving more, which he said will shave 1 percentage point off annual US consumer spending growth for years to come.

"It is hard to say how bad things will get," Rosenberg added. "We're in unchartered territory at this point."

As for Theresa Parks of Atlanta, she says that her days of loose spending are over.

"When I catch up with my mortgage, I aim to save every penny I can and plan for my daughters' future."

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