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One year. $2 trillion gone. According to Reuters, "Homes in the United States have lost trillions of dollars in value during 2008, with nearly 11.7 million American households now owing more on their mortgage than their homes are worth, real estate website Zillow.com said."

A homeowner with a mortgage which is underwater is more likely than someone who still has equity to default or go through a foreclosure.

The question is how much more likely? During 2009, the number of homes with "negative equity" is likely to grow, by at least several more million. There will be another wave of mortgage rate resets beginning in mid-2009 and running through 2010 as "pay option" loans increase homeowner principal and and interest rates.

Anyone who thinks that most of the real estate credit crisis is behind the economy and that home prices will bottom in mid-2009 has to have his head examined.

In large states including Michigan, Florida, and California, home prices could drop another 15% or 20%. Buyers are likely to stay out of the market as unemployment rises. For every person who loses a job there are another two or three who are worried about it.

While mortgage rates are dropping, the other credit pools which consumers have had access to, especially credit cards, have dried up. That makes a potential homeowner feel poor. There may be money for a home, but nothing else.

That is cutting it pretty thin.

Douglas A. McIntyre