Normally, consumers pull the U.S. out of a recession. This year, they may push us into one. Consumers have loaded themselves with far too much debt. With housing prices plummeting, the game of using the home as a piggy bank — financing consumption by tapping rising home values — is over, while unemployment and inflation both rise. For years, consumption was buoyed by that housing bubble. POP!! Trips to the shopping mall are already shorter and less frequent.

In theory, San Diegans should feel the pain more because they experienced the earlier ecstasy much more intensely. Some local economists, however, are keeping their fingers crossed. They hope that strength in industries such as telecom and tourism will offset the decline in consumer spending. None of these experts can be considered bullish, however. All expect an economic slowdown, and all realize that San Diego, the rest of coastal California, and the East Coast could be more vulnerable than inland areas that plodded along during the boom years.

Consumers are wading in deep debt dung, economist and Forbes columnist A. Gary Shilling of Springfield, New Jersey, points out. The payments that families make to service their mortgage and consumer debt are now within a hair of the all-time high of 140 percent of spendable income; in 1994 such payments were below 70 percent. The personal savings rate is zero. In the early 1980s it was above 12 percent. Shilling thinks a national recession has already started. He predicts that housing prices will decline 25 percent from their peak of October 2005 to a trough in 2010. “On average, anyone with a mortgage has only 31 percent equity, so a 25 percent price decline will be devastating,” says Shilling. He predicts that housing sales will drop 60 percent over the period.

Shilling believes the recession will be the second worst since World War II. Economic growth will shrink by 3.4 percent from the fourth quarter of last year to the fourth quarter of this year. The only worse recessionary decline since the war was the 3.7 percent contraction in 1957–1958. In the current recession, he expects consumer spending to drop by 1.6 percent, peak to trough. In 1957–1958, consumer spending dropped by only 0.6 percent. Ditto for the severe 1973–1975 recession. In six of the other eight postwar recessions, consumer spending actually grew.

Today, “The states that had the biggest housing bubbles are suffering the biggest busts,” says Shilling. That includes California, of course. “In a number of cities, foreclosures for sale are more than 50 percent of listings,” says Shilling. Uh-oh. That suggests San Diego is among the worst. It is. Foreclosures here are 49.7 percent of total sales listings. But if it’s any comfort, the data are worse in other large California markets: Riverside–San Bernardino (55.2 percent), Sacramento (62.7 percent), and Oakland (63 percent).

San Diego’s housing bubble expanded farther and faster than the bubble in almost any city. Already, prices are down more than 17 percent from the peak in fall of 2005. Home sales are already down 72 percent from the peak. So San Diego’s price plunge is already getting close to Shilling’s 25 percent prediction. The sales drop has already exceeded Shilling’s national forecast of 60 percent. And Shilling is known as a pessimist.

“San Diego had a bigger run-up in prices, so it’s vulnerable to a bigger fall-down,” says James Hamilton, economist at the University of California, San Diego, who specializes in studying both housing and economic contractions. “The data coming in suggest house price declines in Southern California are bigger than in most parts of the nation. I think there is reason to be more worried [about consumer debt] than elsewhere. To the extent our real estate price declines are going to be bigger, we are more vulnerable to a negative shock.” Hamilton, however, is “not as certain as some people are that the equity withdrawal [from homes] was the whole story for the consumption boom, although it must have been part of it.” One offset: San Diego’s tech, biotech, telecom, and tourist industries are still strong.

Hamilton is not sure whether the United States will go into recession. His fellow UCSD economist, Ross Starr, thinks the national recession has already begun. It won’t be particularly deep and will end in the middle of this year, “but then there will be a couple of years of what people will call a ‘jobless recovery,’ ” because of continued weakness in housing. “Because San Diego and all of Southern California had such a vigorous residential sector the last five years, the decline in construction will have a strong regional impact.”

Alan Gin, economist at the University of San Diego, says that San Diego’s last downturn in the early part of the century was caused in part by the bursting of the stock market bubble. “One of the things that helped lift us out was rising equity in homes,” he says. People used a variety of financing methods to borrow on those rising values “and spent it on cars and remodeling.” But he is not sure that in the 2002–2005 housing price run-up San Diegans pulled all that much out of their homes. “If somebody’s house ran up from $300,000 to $700,000 and then dropped to $500,000, how much equity did they tap?” he asks. Possibly in an economically depressed city such as Cleveland, people may have pulled out relatively more in a house that went up from $150,000 to $200,000. As Cleveland and other old industrial cities attest, some of the biggest foreclosure woes are in depressed cities. “In San Diego, East County and South County are where people are having the biggest problems. Those are lower-income areas.”

Gin doesn’t think San Diego will have a recession, “but it will feel like a recession to a lot of people,” he says. Jobs will grow this year by only 5000. The county has been doing around 20,000 a year in this century and hit 50,000 in 1999 before the stock market and tech bubbles burst. “Real estate will continue to suffer,” he says, but the tech-related sectors should do well unless the U.S. economy becomes as weak as Shilling says it will. Then there could be problems.

Kelly Cunningham, economist for the San Diego Institute for Policy Research, says, “Things are slowing down. Before, people could spend because they could refinance their homes, get second and third mortgages.” But now that spigot has been shut down. “Retail stores will see slower sales.” San Diegans are loaded with debt: “We’re overextended here more than in other places,” he says. “We certainly had a bubble in housing prices that needs to be brought down to reality, although our reality is higher than the reality elsewhere.”

Cunningham says San Diego is not overbuilt in housing. “People still want to live here,” he says. The county has to get back to a price/affordability equilibrium. Then those homes in inventory will be sold and more will be built. Although San Diegans are overleveraged and consumer purchases will slow, “Our economic drivers are not dependent on consumer spending,” he says. (However, others point out that consumer spending is 72 percent of the U.S. economy and at least as much of the San Diego economy.) Cunningham thinks that strength in tech sectors will offset the weakness in construction and real estate. San Diego will add 14,000 jobs this year, up from 11,000 last year, he says.