Q:

I purchased my home 2 years ago here in Michigan City for $92,000. I just recently applied for a refinance with a local lender, and they informed me that my house is currently worth only $81,000. How is this possible? Doesn't what I paid for the house make a difference?

A:

Unfortunately, we are experiencing some of the downturn here in Michigan City also.

After some further research, it appears that we have a 4.5% decrease in values as an average.

The problem we are experiencing is not necessarily that homes are worth substantially less over the long-term. What we are seeing is that, due to the increased sales of foreclosed homes, and the typically lower sales prices, the comparable sold properties in many neighborhoods are justifying lower appraisal values than normal.

In the past, a foreclosed property or a property sold in conjunction with a "short sale" agreement with the existing lender, could be overlooked as it was considered a "distress sale" and was therefore not representative of true values. However, when the sales of foreclosed properties become a larger percentage of the sale activity they can no longer be considered an exception and be overlooked in a valuation analysis.

My personal opinion is that this is a short-term situation. As the market rebounds more normal sales will generate comparable sold properties at the level at which we have been for the past few years. The truly unusual situation in which we find ourselves can change in as little as a few months, so don't let it get to you. As soon as a few homes sell in your area that are not "distress sales," the values can rebound quickly.

So hang in there; your home is still your best investment but must be looked at as a long-term bet. In time we should all be back on track with real estate values.