Reverse Gear Yet?

"The wealth effect is a behavioral economic theory suggesting that consumers spend more when their wealth increases, even if their income does not."

My own observation is that for many people, the wealth effect is indeed real and not just a theory.  I have personally witnessed people borrow and spend far more money than they should feel comfortable with because their rationale has been that their homes and 401k accounts are showing sizeable gains every quarter and they believe that those gains are permanent.  They believe with all of their hearts that the future sale of all or a portion of those assets will allow them to retire the large debts they are incurring today.  The purposes behind all of those large loans can vary.  Home improvements (on a house that is already the envy of the neighborhood), a daughter's over-the-top lavish wedding, a son's drug rehabilitation program, a mulatto grandchild born out of wedlock, opening a pot dispensary, a vacation to Hawaii or....all of the above.  Go big or go home as they say.

For the sake of argument, what happens if the wealth effect "theory" is true but suddenly, assets begin to fall in real time valuation?  Does that play with the heads of the middle classes?  Does a "reverse wealth effect" exist or would that also be a theory?