Last year was the worst year for U.S. foreclosures since 1932, at the height of the Great Depression. And 2008 looks set to be even worse. The economy may be in trouble, but there are steps you can take to prepare for the coming downturn.
by Melvin Rhodes
On a recent Sunday afternoon, as my wife and I were leaving our home, a lady pulled up in a car and started to put a "For Sale" sign on our front lawn. I shouted out that I thought she must have the wrong house. She laughed and assured me that the other side of the sign had an arrow pointing to a house further down our street, which she was trying to sell.
The lady was a real estate agent, so I took the opportunity to get an update on the housing situation in our neighborhood.
"How are houses around here selling?" I asked.
"In this pocket," she answered, "better than average."
"Well, that's good," I responded. "How much have home values declined?" was my next question.
I was totally unprepared for her answer.
"Last year they dropped 19 percent! This year they are expected to go down a further 25 percent."
We bought our home exactly two years ago. I already knew that the average price of homes in the Lansing, Michigan, area dropped 11 percent in the first 12 months we were in our home. Our local newspaper confirmed what the agent said about the second year—in 2007 they dropped a further 19 percent and are expected to go down by 25 percent this year. This means that, by the time we have lived in our house three years, it will have lost about 50 percent of its value—half of what we paid for it.
According to the Lansing State Journal, in the fourth quarter of 2007 Lansing was the worst hit urban area in the country ("Prices Cut, but Homes Unsold," Feb. 15, 2008).
We realize that we are not the only people in America who are losing. Hundreds of thousands, even millions, of couples find themselves in a similar situation. It's also the case that there are still some areas of the country where house prices continue to rise, so the situation across the United States is uneven. Other countries are also affected by the slump in house values.
