Where Has All The Equity Gone?

<---------- Is this what happened to your home equity?





Of course, that is not a funny joke. I have dealt with a number of people that had the experience of having their home burn down. They lost everything and had to fight with insurance companies. Not a good combination.

But many areas of the country feel that in many cases their value of their home has gone "up in smoke". I've had many people just in my community say, "But it just appraised at $xxx,xxx just last year and now it only appraised for$yyy,yyy?" My answer, normally? "Yes."

Greenspan, yeah he is still talking, has said he sees prices of homes falling even further. Can we really be surprised? Many areas saw home appreciation in the 20% range each year and some of the hottest areas even more than that. But what ultimately happens? Homes get overpriced. People find their brain and decide they won't overpay for a home. Rates go up (kind of). Builders build too many homes. Foreclosures start to spike (because of the kind of higher rates). And then down, down, down, come the prices.

The higher your market appreciated in the last few years the more accelerated the decline. It sucks if you bought at the top or need to sell your home but it is necessary for healthy growth in the future.

Home appreciation has outstripped gains in income within the last 10 years. It has to stop somewhere. For most, if they can "wait it out" before moving they will. Why sell the house today for $20,000 less than it was just two years ago when I don't have to move?

If it were any other type of market, such as the stock market, you would cut your losses and move on. But the housing market doesn't work that way. Both buyers and sellers think that they are going to find a sucker. Buyers are going to get a seller to sell their home for a song. Sellers think they can get buyers to pay the moon and stars. So nothing happens.

Meanwhile builders haven't ramped down production and have lots of inventory to move. They would rather move it for less than have it sit and make payments on it. So the home sells for less. With ARM resets and people walking away from their homes, banks are only able to sell those home for 50 cents on the dollar if their lucky. If too many foreclosures happen in one area, prices start to decline there too.

When will this end. Later rather than sooner. There isn't much that the Fed can do. Even if they continue to drop the rates, you will not see the froth that caused so much of this mess to begin with. Look to 2009 or later before prices in most parts of the country to start to rebound.