The Home Equity Vanishing Act

(MoneyWatch)  How deep is the housing recession? At the end of last year, 12 percent of all homeowners with a mortgage were either behind in their payments or in foreclosure. As of the beginning of March, a fifth of all homeowners were underwater with their mortgages. That is, they owed more than their homes are worth.

According to American CoreLogic, $2.4 trillion of home equity evaporated in 2008.

For a society that pegs self-worth to net worth, the home equity vanishing act is like a gut punch to the stomach. To make matters worse, what's left of your self-worth might be tied up in the account that used to be called your 401(k) -- now referred to in some circles as your 201(k) because it's worth half of what it was.

How are we supposed to feel good enough about what's going on in the financial world to make an investment in our future? Buying a house today means putting at least 3.5 percent down in cash (hello, FHA loans), or preferably 20 percent (any loan backed by Fannie Mae and Freddie Mac). But if home prices decline another 15 to 20 percent, as some economists are predicting, today's hard-earned cash down payment might vanish into thin air.

What will the number of underwater mortgages look like if that happens? Will a third of all homeowners be underwater? Will all home buying stop? How many more builders will go out of business? And will we ever be able to sleep well enough at night to dream a new American Dream?

I gotta tell you, it's enough to make anyone's head spin -- even mine.

I've been writing about real estate for some of America's top newspapers and financial magazines for more than 20 years and have had my own nationally syndicated column (in 100+ papers, from the Washington Post to the L.A. Times) since 1993. I host a popular radio talk show Sunday mornings on Newstalk 750 WSB, in Atlanta (tune in at wsbradio.com or listen to the podcast at my website, ThinkGlink.com) and have written more than 10 books on real estate and personal finances. I spent eight years as an on-air reporter/producer for WGN-TV, Chicago, and currently host ExpertRealEstateTips, a how-to Internet video series that covers everything from cool home technology to home improvement, mortgages, credit, buying, selling, scams, and fraud.

I'm into my third decade of eating, breathing, and sleeping real estate and personal finances for a living, but I've never come across a time more confusing than today. Even Southern California in the late 1980s made more sense than where we are now.

This blog will be the place where I share information that doesn't make it (for one reason or another) into my weekly columns, radio show, or books. I'll share my vision of the past, present and future of the real estate industry (and the financial world of credit, debt, and scams that touch it). I'll delve into trends that I see and tap into the wisdom and frustration of my many readers, viewers, web site visitors, and industry observers and experts I meet along the way. I'll review some of the latest real estate books coming to a store shelf near you, and share my thoughts as I write my newest book (due out next year).

I look forward to continuing the conversation with you, and hope you'll be open with comments, criticisms, and feedback.