Consumer spending, especially among younger homeowners, would tighten if home prices drop significantly, a Boston-based research analyst said.

One in four respondents to a survey by Reach Advisors said they would face financial challenges if homes no longer gained in value, James Chung, president of the firm, said during a trip to Las Vegas for the Big Builder Conference at Mandalay Bay. Chung discussed Generation X home buyers.

Reach Advisors, which conducts marketing strategy and research for large master-planned community developers and resort real estate developers, surveyed more than 2,200 homeowners to track their attitudes toward the current housing market and what would happen to them should home prices level off or recede.

The independent study, "Moving Away from Easy Street: Homeowners and Market Shifts," was not conducted on behalf of any specific client.

One-third of those surveyed said they would face financial challenges if home prices dropped 10 percent and half said they would face financial challenges if home prices dropped 25 percent.

The challenges may be acute for Gen-Xers, home buyers in their 20s and 30s, he suggested. When looking at demographic segmentation, the youngest group of homeowners is the most optimistic and also the most fragile, he said.

"I'm not here to predict a massive bubble bursting. Certainly there'll be some shifts and turbulence. What we're trying to measure is what'll happen if it does," Chung said. "The Fed's uncertainty over whether or not there would be a relationship between home price drops and cuts in consumer spending certainly appears true at the individual level."

If housing prices drop at all, 46 percent of survey respondents said they would cut back on their spending. Sixty-eight percent of respondents in their 20s said they would cut their spending if home prices dropped.

"Given this factor and a few other indicators, we can project that a downward round in housing prices would produce a rash of foreclosures concentrated among young adults," Chung said. "Markets that are very Generation X-driven by people in their 20s and 30s may have more turbulence."

Though they earn a greater household income than baby boomers did in their 20s and 30s, Gen-X home buyers are not necessarily wealthier because of it, Chung said.

"They're buying into the market after the run-up," he said. "Take a look at the amount of debt they carry. They have 62 percent more housing debt than baby boomers at this stage in their life. They're basically strapped in, living a little more on the edge. It's a generation where they really stressed themselves to get into a home. They're more likely to buy into ARMs (adjustable rate mortgages)."

Chung said the residential real estate market is at a critical juncture and much of the analysis so far has come from closely watched but backward-looking information or anecdotal accounts from experts and homeowners.

Although Chung has never seen a nationwide decline in home prices, he said there are precedents of 25 percent to 30 percent drops in some communities such as Boston, Dallas and Southern California in the not-too-distant past.

"The difference now is that homeowners are much more leveraged than ever before," he said.

As for rising interest rates, most adjustable-rate mortgage holders don't seem too worried; they are betting heavily that they will either move or refinance favorably before rates rise, Chung said. While that may be optimistic, Chung said he hopes that's the case since a third of those holding adjustable-rate mortgages reported that if interest rates rose a few points, they'd face financial challenges because they don't have a backup plan.

Based on his research, Chung said he can project which specific regions of the country are most confident about prices dropping or continuing to rise, exactly who is most pessimistic and why it's a small number.

"There will be a lot of communities in America where there will not be a drop, basically because they never had a run-up," he said.