#1 Guilt by association. Your neighbor's ARM rate has just adjusted upward. He'd like to refinance, but now some things may have happened that stifle his plans. First, with tighter credit standards, he may not be able to refinance as much as he would like to, or he could get rejected completely. Second, his home's value has decreased, so refinancing is even harder.

Why should you care? If your neighbor can't refinance, he may have to sell or be foreclosed on. That's bad news for your home with so many others already up for sale on your street or in your immediate area.

#2 Where have all the buyers gone? Even if your credit and finances are stellar, that doesn't help you as a home seller. Many first-time subprime borrowers that were getting mortgages in recent years are now hitting a brick wall. They can't find a suitable lender, either because a lot of lenders have gone out of business or because they can't qualify for a mortgage with the tougher credit standards now being enforced.

Here's a story that illustrates how serious this situation is: We recently heard of a couple selling their home who accepted the lower of two price offers because it was more important to go with the buyer most likely to qualify for a mortgage than to accept the higher price!

#3 Jumping ship. Soaring prices in the past several years attracted a lot of investors to the real estate market, so an enormous number of investment homes (bought to rent out or for quick re sale to turn a profit) were purchased. That's a key point because many of these kinds of investors aren't willing to sit on a home they don't live in that's losing value. So as the market stagnates, investors are bailing out of these properties.

This causes two problems: It contributes to the glut of unsold homes across America, and investors have a different mindset when it comes to selling homes. They usually just want to bail out from an investment that's losing value, so they're much more interested in a quick sale and will take a lower price to accomplish their goal. That, of course, puts even more pressure on already dropping prices.

What You Should Do Now

We hope that gives you a better understanding of what's caused this whole mess that's being felt from Main Street U.S.A to Wall Street to the halls of the U.S. Capitol.

OK, enough bad news. Here are some quick tips to make sure you're managing your money most effectively in this crisis:

Tip #1: If you're looking to buy a home, you picked a great time. You probably have a lot of possibilities from which to choose, and at cheaper prices! No matter what a lender may tell you, GET A FIXED RATE MORTGAGE ONLY.

Tip #2: This is related to our first tip, but if you have an ARM and you plan to be in your home for more than 5–7 years, switch to a fixed-rate mortgage now! The "adjustable" part of ARMs is a big reason we're in this mess, so don't put yourself in that situation and become a statistic!

Tip #3: If you own a home and you think that you'll need extra money in the future for a good reason (home improvement, college expenses, etc.), get a home equity line of credit NOW if you don't already have one. With housing prices dropping, you want the credit line based on your home's present value. If you need it, you'll have it. And if you don't use it, it will cost you nothing.

Tip #4: If you're trying to sell your home in this crummy market, watch our video called "How to Sell Your Home When Homes Aren't Selling." It's full of strategies to help your house stand out from the competition so you sell it faster.

We believe tough times are still ahead for the housing market, so we want you to be smart about your money. That way, it won't be you we're reading about in the headlines!

Related Links:

• Tax Relief for Troubled Homeowners
• Recession Survival Guide
• Mortgage Madness

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