Showing posts from January, 2009

The Road To Recovery

My generation, the baby boomers, learned how to use leverage to gain wealth. Unfortunately we became intoxicated with leverage and now are experiencing a massive hangover that is affecting all generations. The current recession is the worst since the great depression and the coming recovery will also be different. In prior recessions our net worth came out unscathed.  Our incomes may have came down or at least slowed down. This time the value of our homes and our retirement funds has dropped by as much as 30-40% and this has resulted in a significant drop in our net worth. The affects of a reduction of  home values was compounded because most of us borrowed 80% of the purchase price to buy a home and our equity was 20% of its value.  As shown by the graph to the left, if you purchased a home in Metro Detroit in October 2007 for $200,000 and put 20% down, $40,000, your equity in that home was reduced to zero by the 20% fall in home prices over the first 12-months of owning