Most people think of appreciation when they think of real estate - and most houses do increase in value over time. But values can fall as well, especially when a red-hot market begins to cool.

In this situation, purchasers can easily find themselves trapped in their homes - unable to sell because the proceeds would be inadequate to pay off the mortgage. Short of defaulting on the mortgage, these homeowners have two options - stay in the house until values recover or put up the extra cash to pay off the loan.

This nightmare scenario is not all that uncommon. With closing costs of 6-8% on a sale, a buyer who puts down 10% is almost there without any depreciation. Even with a conventional 20% down payment, a contraction in value of as little as 12% can completely eliminate the buyer's equity.

The best way to avoid this situation is to exert extreme caution when purchasing in a booming market. Don't get caught up in the hype and get drawn into bidding wars - it's a sure way to ride an inflated market back down.

Generally, the sharper the spike in values, the steeper and more rapid the decline when the economy turns - and it always turns. Be careful, be prudent, and your home value will go in the right direction - up.