Beat the Housing Crisis

THE CHALLENGE: Your equity has vanished

What if you're one of the millions of homeowners who are making their payments just fine, but you've lost equity or are even underwater?

"If you don't have to sell, don't panic," advises Rick Kahler, a certified financial planner at Kahler Financial Group in Rapid City, South Dakota. "The equity could come back." That could take a while in Florida or Arizona, where many homes have lost half their value, but less so in states like South Dakota, where prices have fallen less than 10 percent. The credit-rating agency Moody's predicts many homes will regain their peak values by 2021.

If you do need to sell your home, you may have to cut the asking price more than you had planned. But look at it this way, says financial planner LeBlanc: "You might have suffered a lot of equity loss, but so has the house you're looking to buy."

In retirement, he tells clients, cash flow is the important thing. So if you need to improve cash flow right away, you should try to downsize to a smaller home before you retire.

In Oakland, Lynette Neidhardt opted not to downsize, in part because of the close bonds she has made with her neighbors. "I don't want to leave," she says. "I've spent too many years building a community. As a single person, I consider my neighborhood my family." That doesn't mean it hasn't been hard. "The horrible part was never knowing from one day to the next whether I would save my home. On the other hand, the really good part was realizing that a neighborhood is way more than houses on a block — it's people you care about and who care about you."

Which makes keeping your home a goal well worth pursuing.

Maryann Haggerty is the former real estate editor for The Washington Post. Michael Hudson is the author of The Monster: How a Gang of Predatory Lenders Fleeced America — and Spawned a Global Crisis.