Feeling the Pain, but Hope Springs Eternal for Me

Last week we fielded a call from Frank in Florida who by his own account has lost 87% of the equity in his home, and this week we had a call from Pat in Cumberland asking why would someone even want to buy a house in Rhode Island these days. Both of these callers were very passionate and it made me reflect on their situations. Prices have fallen about 32% from the peak in 2006, according to the Standard & Poor's Case-Shiller home-price index.   Economists say that every home sale eventually generates $60,000 into the GDP, spurring economic activity for Realtors, Title Attorneys,     plumbers, electricians,   furniture stores,   Home Depot,   Lowes et al,   resulting in the equivalent of one job created for every two sales.   Unfortunately, since Housing is part of the problem, we haven't been able to   rely on Housing to pull us out of this recession like it has in the past; that is why we have a ‘jobless recovery' with fears of double dipping into recession. Price drops that force borrowers underwater can lead to more foreclosures. In the past people were able to ride out jobless periods by borrowing on their home equity, unfortunately, many people have lost that cushion. The fact is you really haven't lost anything, unless you have to sell right now, the only money you have actually "lost" is what you have put into it. So when will we see gains in equity? Economists believe we will soon start to see 2- 3% appreciation, so ten years to break even if you bought at the peak, but this is pure speculation, anything could happen. It is funny how so many people would rather follow the crowd than do what is best for their personal situation, the people who flocked to buy during the boom thought nothing of the fact that so many unqualified people were buying houses they could not afford, betting on negative amortization loans and continued appreciation to float them, yet fear of the future   now keeps many people on the sidelines in spite of historically low prices and mortgage rates.   Today commentators are vilifying the "draconian lending standards that continue to hold housing back", while that may be true to a certain extent,   I actually feel more comfortable in my mortgage today knowing that the majority of fellow homeowners   can actually afford the home they are in, don't you? Pat chided us for our Pollyanna outlook, but perception does play a role in the economy, and since there is so much negative news, we do like to report some of the positive reports to offer homeowners some reassurance  that they are not jeopardizing their financial futures by continuing to pay their mortgages. This Week's Real Estate Insight: Unfortunately Rhode Island has historically been one of the first states to fall into recession and one of the last to recover, so it might be bumpy for a while, but everything is cyclical, and when the market does come back it might just come back like gangbusters.  The majority of Americans still believe housing is a good investment, there is pent up demand and new households being created every day. The decline in divorce proceedings is noteworthy; a University of Virginia study found that nearly 4 in 10 married Americans ages 18 to 45 who had been considering divorce put off their plans     because of the poor economy.   When values do begin to rise, these people can sell their house, or feel confident to support separate households. So don't worry too much, as Lil' Rhodys motto points out, there is Hope.