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Tuesday, May 20, 2008

Dude, where's my equity?

One of the biggest issues that I face on a daily basis is trying to help home owners who want to sell face the reality that much of the value that they thought was in their homes has vanished in the current market.

I recall the concern that I had when the stock market took its big downturn in the early 2000's. I watched month after month as my financial statements arrived and showed me that I too had been hit hard by the decline in the stock market. It took a good five years to recover from that and I'm really still not all the way back.

The same is true of the housing market. I know that the people that I'm talking to have seen the reports in the newspapers and seen the TV reports of the loss of value in the local market; yet, most seem capable of thinking that it really didn't happen to them. many cling to that last appraisal, done 3-4 years ago that showed them how much their home was worth then. Surely it can't have fallen much from that, right? WRONG! Any appraisal over 3-4 months old is out of date and likely way too high.

The folks that I feel really bad about are the ones who bought within the last 3-4 years. They are almost all underwater - they owe more on the home than it is worth today. Usually the people who've been in a house for 5 or more years are OK, if somewhat disappointed at the current values. The other group that is having major heartburn with the current prices are the older homeowners, many of whom have been in the house for 20-30 years and who had been counting upon the equity from the home as a big part of their retirement nest egg. They are having real trouble letting go of the "value" that they saw 3-4 years ago in their homes, even though they are now worth 2-3 times what they paid for the house when they built or bought.

In reality, one almost has to look at this much in the same way as one weathered the stock market downturn. Your house value went down, just like your stock portfolio. Over time it will come back, just like your stock portfolio did. It will just take 4-5 years, much like it did with stocks. And, we've all learned a take away lesson from this - home values don't always go up, at least in the short term.

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