Californian home owners are so flush with home equity, the hundreds of thousands of dollars in home-grown cash could easily see them through hard times, says one study.

But another study chides Californians for using home equity as income. The second study says the extra cash is built on an unsound foundation of fast appreciation and easy credit that may not hold up. The spending habit could send both household budgets and the Golden State's economy into a tailspin.

Released within days of each other, two conflicting studies about California's housing-based economy paints an uncertain future for the nation's fastest appreciating housing market. The California Building Industry Association's "California Home Equity Analysis" says home owners who purchased a single-family detached home in 2000 now enjoy a median $260,630 in equity. Condo owners have earned a median $226,831, in both cases, as of the first quarter of 2005. Even those who purchased homes just last year have a sizable return--$100,755 in equity for single-family home owners and $84,672 for condo owners. In the coming years, home owners can expect additional annual equity gains as high as $50,000 a year. All the totals include an estimated 15 percent down payment as a portion of the equity.

Equity is the difference between a home's value and the outstanding mortgage on a loan. It begins with the down payment, if any, and grows as the owner pays down the principal and as market forces appreciate the home's value.

In the past five years, California's home prices have grown by 103.02 percent, faster than any other state in the nation, according to the Office of Federal Housing Enterprise Oversight's Home Price Index.

Any equity loan, obviously, is an equity-depleting loan, and experts say the money is best used for capital improvements and investments that provide an equal or better return on your money than the cost of the loan. Home improvements, education for the kids and new business financing are relatively better uses of equity than buying cars and boats, debt consolidation and vacations.

Other acceptable home equity uses can be emergencies or unforeseen financial events that reduce your income or place added demands on your wages--job loss, births, illness, injury, death and others.

Both the home builders' study and the "The California Report: Beware The Froth" from the UCLA Anderson Forecast credit the state's hot housing market for fueling a lackluster economy since the last recession.

The boost isn't just from home building and sales, but also, perhaps more so, home equity loans and cash-out refinancing spurred by ever-lower mortgage rates. Both studies also say housing market momentum means a housing bubble bust isn't likely to be imminent.

But that's where the studies go their separate ways.

Builders say the home-grown stash is like a nest of golden eggs that just keep appearing out of sheer demand that could move 250,000 new homes alone each year. For a host of reasons, however, builders can't manage to build 200,000 new homes each year.

"There has been much talk given to the so-called 'housing bubble' that some feel exists in the California housing market, due to recent price appreciation. What has not been as widely discussed, though, is the amount of home equity that as been accumulated by home owners in California," CBIA's chief economist Alan Nevin said.

Nevin says much of the equity has already been plowed back into the economy through refinancing, allowing homeowners to buy goods and services they wouldn't otherwise have been able to afford. Consumer spending is the economy's premium fuel.

The "froth" (an allusion to Federal Reserve Chairman Alan Greenspan's characterization of the housing market as containing "froth" or little housing bubbles rather than a nationwide housing bubble) forecast says the housing market is more likely to lay an egg just because of that kind of consumer spending.

Author UCLA economist Christopher Thornberg says buyers are gambling away their household budgets, perhaps their home and the economy by spending what could be phantom wealth.

Any housing downturn, even a flattening could trigger a slump in equity-based consumer spending because consumers have begun to rely too much on home equity to finance cars, furnishings, appliances, home repairs, even retirement and other purchases historically purchased with incomes and savings. Also given the high rate of discount loans and interest-only mortgages, much of the equity is market-based with consumers contributing less in terms of actually paying down the mortgage.

While there has been some strength in the state's entertainment, tourism, manufacturing and still sluggish high-tech sectors, there is not likely enough strength in those sectors to offset a housing slowdown that comes with flat or falling prices, according to the "froth" report.

Real estate writer Broderick Perkins, executive editor of San Jose-based DeadlineNews.Com, writes regularly for this newspaper.