Economists have always considered the housing slump's impact on household wealth one of the key risks in the outlook for consumer spending. Studies show that people eventually spend about 5￠ of every dollar increase in their overall net worth, which can be fueled by a range of assets from stocks to bonds to real estate. It also works in the opposite direction, and the effects of the housing bust are beginning to take a toll on household balance sheets. The situation will get worse in 2008, as home prices fall further. The question is, how hard will consumers be hit?
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