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What goes up, must come down. The real estate market has been hot for several years. Various economic pundits predicted the end of the real estate boom for over two years now. As usual, their predictions were a little early and only the most astute investors shifted their assets out of real estate and into different investment options. This is the game of investing. Why this real estate recession is so troubling is for a large number of people their house is their only real estate investment. The impact of a real estate recession on these people is more personal than the impact on investors.

Low interest rates and zero down mortgages drew large numbers of individuals into the housing market. Like most home buyers, each tried to buy the most house for their money even if it meant taking a high risk adjustable rate mortgage. Home owners took advantage of easy funding to pay down debt or improve their homes. When the selling price of housing stock falls, many of these individuals find themselves " upside down" on their mortgage. Their debt on their house is more than the house can sell for.

Rising interest rates cause adjustable mortgages to rise. If your income has risen, this is not a problem. If your income has fallen or has stayed stable, more of your available cash is directed to housing. Over time this causes a slow down in other sectors of the economy since money is not available to purchase consumer goods. This then affects incomes since companies with declining sales do not normally increase their work force nor increase the pay of existing employees.

The entire economy has not fallen apart because those who paid down debt or have seen their income rise still have funds to purchase consumer goods. An indication of this is the holiday season retail sales figures for stores such as Coach and other luxury goods retailers. Those with cash and credit are still buying, and they are spending in the luxury goods market. The problem arises when this group either gets spooked by the decline in the value of their own home or uses up their available credit.

It is now a buyers market. Those who sold when the market was hot made money, unless they rolled their profits into a more expensive home. Those who bought at the top of the market, or over improved their house, may need to sell at a loss or stay where they are until the housing market goes on another of its' wild rides.

No one is surprised when individuals lose money in the stock market. The volatile nature of that institution seems to be understood by most. The real estate market is no different. The average person seems to think it is guaranteed to always hold or increase in value. This is a myth. The real estate market fluctuates just like the stock market. The current set of buyers and sellers need to adjust their positions and wait until the next bubble grows. Just hope the entire economy does not go into a tail spin in the meantime.

Learn more about this author, Kelly Moser.
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