Oct. 8 (Bloomberg) -- Americans are cutting back on spending as plummeting home values and the global credit crunch reduces the amount of money they can borrow against the equity they have in their homes.

The CHART OF THE DAY shows net equity extraction, minus closing costs, fell to $9.5 billion in the second quarter, the lowest since the fourth quarter of 1997 when it was $9.1 billion, according to data collected by former Fed Chairman Alan Greenspan and James Kennedy, a central bank economist. Net equity extraction reached an all-time high of $223.6 billion in the first quarter of 2006.

``The spending party is over and the first consumer recession in 17 years is here,'' Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut, said in an interview. ``We'll see negative consumer spending in the third quarter data, now that households can't rely on home equity to support their purchases.''

The growth in consumer spending, known to economists as personal consumption expenditures, measured in chained dollars slowed to 0.1 percent in August compared with a year earlier, the Commerce Department reported. That was the smallest gain since September 1991, when it was also 0.1 percent. The last time the rate fell was the 0.3 percentage point drop in February 1991.

The U.S. median home price will tumble to $200,100 this year, 9.8 percent below the all-time high of $221,900, reached in 2006, Washington-based Fannie Mae, the world's largest mortgage buyer, said on Sept. 8.

The use of home equity cash is typically divided into three categories, Greenspan and Kennedy wrote in a 2007 report, ``Sources and Uses of Home Equity.'' About a third is used on consumer purchases such as clothing or computers, a third indirectly supports spending as consumers pay off non-secured debt such as credit cards, and the final segment is used for home renovations, they said.

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net.

Last Updated: October 8, 2008 13:41 EDT