New data shows the financial crisis drastically cut the wealth of households across the United States, which contributed to the recession, slowed the recovery, and hurt the middle class.

A report from the Federal Reserve says damage was done mostly by falling home prices between 2007 and 2010.

The Chief Economist of the National Association of Realtors, Lawrence Yun, says falling home prices make families less willing to spend money, which cuts consumer demand and hurts economic growth.

“Decline in home value has a major impact on the economy because for most homeowners the largest wealth holding is in their housing. And therefore, if the home values decline it makes the homeowners much more conservative about their spending outlook. They go to the restaurant less frequently, they do not buy furniture, and even the frivolous items like the high-definition television will be cut back.”

The report says home prices helped cut the median net worth of families from $126,000 to $77,000 over about three years.

Net worth is what is left after subtracting debts from the value of homes, bank accounts and other assets. The median is right in the middle between the poorest half of the population and the richest 50 percent.

Yun says there are signs the battered housing market is recovering and improving.

Gail Cunningham of the National Foundation for Credit Counseling says housing problems and worries about unemployment mean many families are putting off all but essential purchases so they can pay down debt.

“You simply have to have confidence that you are going to have income tomorrow before you make a commitment or even on your daily expenses. People, they are worried about putting dinner on the table tonight. They are worried about filling that gas tank up tomorrow. And without the confidence that a paycheck is going to be coming in, people are very reluctant to spend.”

Cunningham says families are slowly becoming more confident and beginning to boost their spending, but she says many are nervous and some are “hoarding” their money. She says many consumers have a poor understanding of personal financial issues, and some have learned painful lessons about borrowing too much money.