Tips for Surviving the Housing Market

VIDEO: Homeowners seek solutions in shaky economy.
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The typical suburban home -- a two-story, three-bedroom, two-bathroom space -- cost $230,400 in July 2006. In August 2011, that same house cost $168,300.

Those are just a few of the alarming new statistics about foreclosures that are a harsh reminder that American homeowners are still in the midst of a housing crisis.

In addition to the 27 percent decrease in value over five years, more than 12 million American homeowners are seriously underwater on their home loans, meaning they owe at least 25 percent more than what their home is worth.

In the second quarter of 2011, almost 3.6 million homeowners were either over 120 days delinquent on their payments or were already in the foreclosure process.

To survive in today's housing market, experts say, you must be confident of your job status, put 20 percent down and plan on staying in the house a long time, because prices aren't likely to recover soon.

It is forcing a dramatic change in the American dream, according to financial guru Suze Orman.

"Not so long ago, the American dream was owning a home," she said. "That's not what the American dream is today. ... Now, the new dream is, 'I just want to be out of debt, I just want to able to sleep at night.'"

Orman said it could be decades before home values start to rise and predicted that more than half of Americans will be renters instead of homeowners. A staggering 1 in 4 homeowners are underwater, and many experts, including Orman, often recommend just walking away.

"If you are underwater where you bought a home for $700,000, and let's just say you did, and that house now is worth $100,000 -- Tampa, Fla.! That happened in Tampa! All in this community," she said. "You have to, on some level, go, 'Are you nuts to stay in this home?' Even if you can afford it."

Katie Easley of Phoenix did just that: She gave her three-bedroom house back to the bank because it was worth just one third of what she paid for it.

"I would have done anything to save my home," she said. "I would have been happy to sell."

People who are 20 percent or more underwater should ask the bank for a short sale, or selling the house for market value, even if it is less than what is owed, Orman said. If the bank won't work with you, Orman added, stop making payments and save that money until the bank forecloses, and then offer a landlord six months' rent in advance from the money you saved.

"Of course, you should walk away if the bank isn't willing to help you," she said.

The strategic default plan is used by banks, too. They call it a commercial mortgage default.

Morgan Stanley did it -- walked away from its lender on five office buildings in San Francisco last year.

It's not a painless solution. There are serious ramifications to the residential homeowner. Experts say people who walk away will see a drop in their credit score of 150 to 200 points, and it will take at least five years to recover. In the meantime, it will be difficult to buy a new home and you will need a larger deposit to rent.

"It is certain that your credit score is going to become much worse," said Jay Brinkmann, chief economist for the Mortgage Bankers Association. "Borrowing is going to become much, much more expensive."

There is help out there for people running the risk of foreclosing. Several government, state and independent programs exist to give advice, and sometimes monetary help, to those in need.

Check out these three sites to see if you qualify for assistance:

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