Hang Tight -- It Can't Be This Bad Forever

I'll admit it: When home prices were soaring in my neighborhood, it made me feel really smart.

Like so many millions of homeowners, we concluded that we chose the right house in the right neighborhood at the right time. And as the years went by, and all of us on the block could count our home appreciation month by month, all this paper equity made us feel financially secure -- as in "Now we know how we're going to pay our college tuition bills down the road."

But as they say, easy come, easy go. Home prices in our neck of the woods have been falling just as they've been falling around the country.

The Case-Shiller home-price index released last week showed that prices in the top 10 metropolitan areas declined more than 13 percent in February from a year earlier. Home prices declined in the top 20 markets, too, but if you own a single-family home in Las Vegas, Phoenix or Miami, you really got swatted. Single-family-home prices in those cities declined by one-fifth.

Worse, many economists don't think we've seen a bottom on housing prices. Some estimate that prices could drop 25 percent from their recent highs.

We've lived in our house for nearly 15 years, so if the price comes down even 20 to 25 percent, there's still an excellent chunk of appreciation to fund our preteens' college dreams. And we've been working hard to pay down our mortgage balance, adding to our equity. I still feel that we made a good choice.

But if you bought your home in the past two to three years, all of your financial hopes and dreams, not to mention a good dose of self-esteem, may have evaporated overnight.

And if you bought your house hoping to make a fast $50,000, you may find now that your home is worth $50,000 to $100,000 less than you paid for it. It may even be worth less than your mortgage balance. This is fine as long as you don't have to sell, can afford your mortgage payment and plan to live in your home for some time to come.

If the news isn't bad enough, I've been hearing from readers around the country who are in shock that their home-equity lines of credit have been shut off. Apparently, many readers missed the fine print on their loan documents that said the lender has the right to shut down the line of credit if the home falls in value.

And for those of you who are able to sell short -- that is, sell your home for less than what you owe the lender -- and you don't have the lender forgive whatever part of the mortgage balance you can't pay, you may find that the lender may come after you for its loss, or the private mortgage insurer that paid the lender its loss may come knocking at your new rental house door to recoup that money.

This is what a stuck housing market looks like. Nobody feels that smart anymore. So what's going to help?

At its most recent Federal Open Market Committee meeting, the Federal Reserve lowered a key short-term interest rate another 25 basis points, to 2 percent. The collective groan you heard was from those living on a fixed income, who know that the paltry sum they're earning on their savings accounts and CDs isn't enough to keep up with inflation.