"I just sold my house and lost $100,000..."
"I can't sell my house after 12 months, even after lowering the price by 30% "
"I am going to go broke if I can't sell my house...."
"Why can't the government fix this housing crisis..."
"I thought a house was a safe asset that went up over time....."

These are all real quotes from friends and colleagues, who have or are being severely impacted by the depressed housing market. In fact most Americans, directly or indirectly are feeling the pain of the housing crisis. I came across a recent report form the Center for Economic Policy & Research, that confirmed the impact of the housing crisis on our financial fortunes and it paints a pretty bleak picture. In the report, titled The Impact of the Housing Crash on Family Wealth, projections show that as a result of the collapse of the housing bubble, families across all age groups will see a substantial reduction in their wealth compared to the 2001 and 2004 levels (last survey dates). Here is a breakdown of some key figures in the report:

- Families in the 18-34 age group will have 67.6% less in net worth in 2009 than in 2004. The median family in the 35-44 age will have 56.2% less in 2009 than in 2004. This corresponds to a decline of $41,000 in median wealth.

- The typical family in the age group from 45 to 54 will have 34.6% less in 2009 than did families in the same age group in 2004. The median family in the 55-64 age cohort will have $121,000 less wealth than their counterparts in this age group in 2004, a decline of 43.9%.

- The projections show that the crash of the housing bubble is likely to eliminate most, if not all, of the gains that families had made in accumulating wealth over the last two decades.

- Homes are the major financial asset held by the bulk of the population. It was inevitable that the sharp downturn in the housing market that we have seen over the last two years would have a substantial impact on the wealth of most families. As these projections should demonstrate, home ownership everywhere is not always an effective way to accumulate wealth.

Sobering stuff, especially the line "home ownership is not...always an effective way to accumulate wealth", which is a different paradigm on home ownership to what most people have. Based on various media stories and personal interactions I would agree with the quote if you were only considering home ownership for the short to medium. However, if you have owned your home for the long term (10+ years) you would still have experienced a significant appreciation in your home's value and it would probably still be a key part of your net worth.

What the recent crisis should have taught most people is that home prices do not rise indefinitely and that like any asset it can drop in value. The 20% year on year increases experienced for most of this decade were just part of the housing bubble and the fairy tale is long gone.

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