The rapid increase in home values has been tapped as a source of cheap credit by North American homeowners. But that well is running dry -- and that poses a threat to the economy.

An excerpt from the Globe and Mail story:

In fact, the boom in the North American housing market has advanced personal wealth and fuelled a surge in refinancings, home-equity loans and home-secured lines of credit that has fed billions of dollars into the economy -- on new homes and investment properties, major home renovations, even vacations and lower credit card debt costs.

Housing-fuelled consumer spending has been a major contributor to North American and global economic growth over the past several years -- and poses a major threat to the economy if, as some experts fear, the vaunted global real estate boom is on its last legs.

The threat is setting off alarm bells for central bankers at the U.S. Federal Reserve Board.

Last week, chairman Alan Greenspan surprised Fed watchers by dedicating most of his closely watched testimony before Congress's joint economic committee to the surging housing market.

The Fed also recently sent out a letter to U.S. financial institutions expressing concern about their risky mortgage lending policies.

Although Mr. Greenspan concluded in his testimony that a downturn in the housing market "likely would not have substantial macroeconomic implications," some top economists aren't so sure.

"When the housing market cools, when it starts to go flat . . . people are suddenly going to realize that they're spending beyond their means, and they're going to have to pull back on their spending," says Christopher Thornberg, senior economist at UCLA's Anderson School of Management.

"That could have a dramatic impact on the U.S. economy."

The reason the threat is so serious, economists say, is because the so-called "wealth effects" stemming from the housing boom are much larger than those of the equity boom of the late 1990s, simply because many more people have much more of their wealth tied up in their homes than in stocks.