HUNTSVILLE, Alabama (Reuters) - With US consumers increasingly dependent on income they are not earning, Act II of the housing crash could not come at a worse time.

Hopes that a recovery in US housing could somehow outlive government life support deflated on Wednesday when data showed sales of new houses in May collapsed, falling 33 percent from the month before.

Coinciding with the expiration of an $8,000 tax credit for house buyers, this was the lowest figure in the history of a survey that dates back to 1963, when the population of the US was about 40 percent smaller.

Don't think it was a one-month fall: mortgage purchase applications fell in the week ending June 18, despite falling mortgage rates, bringing the four-week average to its lowest since 1997.

The US has attempted a really heroic programme to support its housing market, but now that the effects of that are dwindling we will see what exactly was being subsidised.

Beyond an escalating series of tax incentives for buyers, the government has kept housing finance companies, Fannie Mae and Freddie Mac, on life support, and has pushed other government mortgage programmes far beyond their original mandates, as well as intervening directly through the Federal Reserve in a now ended plan to drive down mortgage rates by buying mortgage debt.

As you would expect when someone with a money making machine starts to lend or give away money to people who want to buy an asset, the price of that asset responds, though the recovery in housing prices in late 2009 served as a warning about how out of sync supply and demand still were.

So, who benefited from all of this support?

Banks caught a big break because it supported the price of an asset they increasingly own and one which is their largest type of collateral.

Banks have made good progress raising capital, but another wave of defaults would be a strain.

Home builders, real estate agents and everyone else who sells a service or product needed by home buyers also benefited, and can expect to see tighter times ahead.

Perhaps the biggest beneficiary though was the bruised psyche of the American home owner, whose willingness to spend was certainly buoyed by a market that was more traffic jam than train wreck. I say their psyche, rather than themselves, because that willingness to spend, while useful in averting an even worse recession, was often not in their own best interests.

If you are betting then on a double dip in housing you are betting on a double dip for the consumer, and as the consumer is 70 percent of the US economy you might as well just bet on a plain old double dip recession.

This comes at a particularly bad time because the income position of consumers is so stretched and because important sources of that income are either finite, unpredictable or simply coming to an end.

While it is very hard to measure, it is highly likely that the huge number of people who have stopped paying their mortgages have used a good bit of that money to buy things that they otherwise could not have, thus artificially goosing consumer spending.

It is true that an unpaid mortgage is a loss for the mortgage holder, but that loss takes time to be recognized and is not as likely to damp as much consumption as will $1200 a month or so extra in the pocket of a defaulter will create. However, while a mortgage holiday in the form of a default may be delightful it eventually will come to an end, as will no doubt the mobile phone and car payments it helped to finance.

Another source of income that can't be counted on is government transfers, which at $2.24 trillion now comprises more than 18 percent of income.

Now, those transfers may well be good policy, but given the worries about the fiscal position what they can not be is counted upon to persist indefinitely.

Finally, there are some interesting reasons to believe that consumers in the US are simply running down assets to finance consumption, another of those tricky things that can only go on for so long.

Annaly Capital Management has noted that $380 billion of households holdings of money market funds have gone somewhere since the end of 2008 and theorise that quite a bit of that may simply have been used to supplement consumption.

For a nation with a track record of confusing asset price inflation with wealth creation, this would be no surprise. What is clear is that US households are particularly badly set up to withstand another housing bust, but that may be exactly what they are about to get.