First Person: The Housing Crisis Rocked Our Financial World

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I know a lot of people who lost big in the housing crisis that began in 2007 and that has continued to plague many areas. We ended up buying our first home in 2008 after the market in much of the Chicagoland area had dropped by a good 10 percent from all-time highs. Prices began to level out for a while and we thought things had settled down. We were wrong.

The housing crisis continued, and things for real estate in many parts of Chicago still have not returned to normal. This housing mess not only led to a significant financial loss for our family, but with it came a crisis of confidence as well and an education in the world of hard knocks.

Lost savings

We piled almost all of our regular savings into the down-payment for our first home. So like many others out there, we were hit hard when the housing market tanked and we ended up selling our home.

After agent commission, interest, property taxes, closing costs, and lost principal, we ended up losing about $90,000 as compared to if we had stayed in the apartment we had lived in before buying our home. Such a loss greatly altered our financial future and was a huge setback in not only our retirement planning but in college planning for our children and our overall financial stability.

Retirement concerns

With such a significant financial loss, several things had to change when it came to our retirement plans. First off, we cut contributions to a plan that offered little in the way of incentives through employer match (it was minimal at best). We did this in an effort to focus on rebuilding our emergency fund.

Secondly, we realized that a house was not necessarily a vehicle for retirement savings growth. Some people think of a home as a sort of bank account where home equity grows over the years. We quickly found that home equity doesn't always grow, but in actuality can be significantly and quickly diminished. Therefore, instead of focusing on things like home size, we instead began to focus on location, area amenities, and finding a home where our equity was better protected for the future as opposed to trying to growth our home into some sort of wealth earning investment for retirement.

Opening our eyes to future home purchases

When things are good and real estate values are rising, such appreciation may tend to cover up some of the other financial obligations that come with a home. It might not seem so bad paying $5,000 a year in property taxes or re-doing a kitchen for $10,000 when the value of a home has just shot up by $20,000 in one year. However, when the market is tanking and we're still pumping thousands of dollars into things like taxes, repairs, upkeep and maintenance, insurance, utilities, and all the rest, it can be a real eye-opener.

It was a completely different feeling pumping over $10,000 a year into such items only to have the value of our home plunge by a greater amount, and this had us questioning the wisdom of making any unnecessary repairs or improvements to our home other than those needed to maintain the home. This meant when it came time to buy again, we were much better prepared for these sorts of things and their associated costs, making better decisions on the types and amounts of costs associated with our next home.

The silver lining

Even though our financial world was rocked by the housing crisis, there was a silver lining. In a market skyrocketing upward, though we might sell a home at a higher value, we might have to buy at a higher value as well. By not letting the housing crisis rock the rest of our world as well, we were able to turn the tables on it so to speak. While the lost money was certainly a blow, we had to look at the situation as a positive too. Therefore, in a marketing that was falling, though we might have sold our home at a loss, we were able to re-buy at a significantly lower price than we might have otherwise.

Therefore, we used the opportunity to upgrade our living location and situation, while downsizing our physical home size, helping us to improve our overall housing situation while at the same time cutting some on those costs I mentioned earlier like property taxes, maintenance costs, and even mortgage costs.

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The author is not a licensed financial or real estate professional. The information provided in this article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.


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