While not a good place to be in it is not the end of the world. Paper wealth was exhilarating these past six years. I remember my Wachovia stock value and the value that I could receive if I sold my car or home.  It was mesmerizing.  Fast forward a few years and now appreciation levels and rates of returns have all normalized. Similar to the stock market, housing, for most of the country, is in the process of finding its new value system.

A recent report from CoreLogic indicated that underwater mortgages and borrowers with less than 5% home equity accounted for 28% of all residential properties.  More than 11.2 million, about 24% of all residential properties with mortgages were in negative equity at the end of Q110.

This percentage, while paying their mortgage payments, is being held hostage and while no one likes that feeling it probably is best that they hold and wait for properties to again stabilize.

A real estate friend of mine told me that being underwater does not mean that you are drowning. Having almost drowned this summer in a riptide I have a different view of being underwater, but what he was trying to tell me is that 75 percent do have equity and some leverage. While not candidates for a short sale, those who are upside down and are financially stable may be candidates for renegotiating.

What does this all add up to?  With the remainder of the short sales coming through (i.e. folks that did not have the financial wear with all to pay the payments), it will definitely mean more loan modifications. And last but not least …those with equity, or first time homebuyers, will need to understand the phrase “sell low in order to buy low.” Before the inflation pressures take hold and drive interest rates and the cost of homeownership up, this group must take advantage, if they can, and act now. These are unprecedented times, but they are times that, with our help and guidance, can be manageable.

Remember there is always an upside to a downside.

By Pat Riley