Sad story indeed, but is she really a victim of foreclosure? Was real estate a bad move for her?  She had a $45,000 house with $400/payments, and a second property. Unfortunately, she lived beyond her means.  That had nothing to do with her real estate. She ran up credit card debt, had a marriage break up and became unemployed.   She’s  more properly a victim of those three things, or of spending more than she earned, than of foreclosure.  If she hadn’t owned real estate she’d be in the same position, only more in debt.

“RC:You just hit upon the problem… Yes, he could sell and have those gains as real money, but EVERYONE can’t. As long as you leave it tied up and we all pretend it’s actually worth that this could maintain itself indefinitely, but the idea in many cases is to cash out at some point”
But we could all borrow 90% and buy more real-estate with the equity draw down,sort of fractional lending but in real estate-would’t that keep it going ten more years?Or diversify buy stocks etc-now you still have your real-estate and your paper profit can play the market-so how do we know clever Canadians didn’t use that extra 10% they borrowed this year to buy cheap stocks or discounted Florida Condos-after all net worth is up so they didn’t spend it all on widescreens

The wealth effect of real estate has often been underlined, particularly within the “ownership society” framework. The assumption is that home ownership provides financial stability and an asset that can be borrowed against in time of needs (e.g. medical emergency, funding college, etc.) or to cash out and fund retirement. However, it can be argued that in the current context real estate is more a cause of impoverishment than of wealth since the asset has essentially been tapped out. For many, homeownership has become a very relative term as they “own” a huge liability instead of an asset. The main impoverishment effects caused by homeownership are:

Income diversion. A large share of the family income is diverted to sustain a non-performing asset that has limited utility and, outside asset inflation, does not provide any real return. Thus, what is spent to cover a liability is not used for consumption or savings. Another sign of impoverishment is the strategy of many homeowners in view of rising mortgage payments due to rate resets and rising utility bills. Many will keep up the payments as long as they can (reducing their consumption) in the hope of keeping their home, thus exacerbating the income diversion effect.
Destruction of savings. Concomitantly with the income diversion effect, many are digging into their savings (if any), their retirement funds or other assets (e.g. jewelry) to keep up with their mortgages. This simply delay the inevitable if the mortgage load is too high comparatively to income. The outcome is even worse; a homeowner (homedebtor) would end up losing the house anyway in addition to severely deplete his existing non-housing assets.
Additional debt. In some cases where income diversion is pronounced and where savings are not available, a homeowner will contract additional debt either to keep up with debt obligations and to cover living expenses (food, energy, clothing, etc.).

All these factors are a real source of impoverishment, undermining the financial stability of many families in an illusive attempt to keep up with the “debt is wealth” paradigm. You end up no longer a homeowner, but “homeowned”. This impoverishment effect will not stop until home prices are the equivalent of renting.”

Blowing Bubbles: From Technology to Commodities (3/14/2009)