Dream House or Nightmare?

Roger Elliott's neighbors call it the Dream House. It's a 3,500-square-foot, four-bedroom, three-bath home set on 2.3 acres in a gated equestrian community. Elliott, a contractor, and his wife Allison, a medical device saleswoman, built the house in Palm City, Fla., from plans they drew themselves.

All told, they've dropped about $750,000 on their home, which they've lived in for just over a year. In many ways they couldn't be happier. But as the housing market has shifted into reverse, the Elliotts--Roger in particular--are plagued by doubts.

This is the part of the story where you'd expect to hear that they financed the home with a risky subprime adjustable-rate mortgage they can't afford. Nope. The Elliotts have plenty of equity, and they aren't worried about making their mortgage payments.

Roger's problem is different. After living through the real-estate boom, he's grown to expect his home to provide more than simple shelter or a nice place to throw a dinner party. He wants it to provide a return on his and his wife's investment--preferably one that's measured in double digits.

Instead, the Elliotts' Dream House is losing value. Across the country it's a familiar scenario. Between 2000 and 2005 the median U.S. home price rose from $143,600 to $219,600--a rise of 52.9 percent, according to the National Association of Realtors. But economists reckon the housing market peaked in late 2005, and by the end of 2007, the Realtors' trade group predicts, home sales will fall by 10.8 percent from 2006. The median home price is also expected to make its first full-year fall since the Great Depression.

The Elliotts aren't sure what their home would sell for today. The local real-estate market is terrible, Roger says, with listed properties languishing. Roger guesses the house is worth 10 percent less than it cost to build--and he's worried its fall has just begun. "I have personal angst," Elliott says. "Yes, I built this fantastic house. My wife loves it. Everybody in the neighborhood thinks it's great." But it was a house built for appreciation. Now that prices are falling, he wishes he'd built something far more modest.

It's not just builder's remorse. Since the home was built partly with an inheritance, Roger feels a special responsibility that the money left to his wife by her father turns out to be a wise investment. It doesn't help that because Roger served as his own general contractor he chose many of his home's pricey extras. Their house has a $40,000 epoxy-metal roof with a lifetime guarantee, hurricane-proof windows, superefficient insulation and an emergency generator. They're great safety and energy-saving features, but Roger doubts that buyers in the current market would value them anywhere near what they cost.

The Elliotts are also realizing they have more house than they need. Like some of the people described in Daniel Gross's story in this week's edition of NEWSWEEK, Roger regrets building a home that has so much unused space. "If I could do it again I'd do it a lot differently. I'd scale it back in every area," he says.

Roger Elliott is hardly the only one obsessed with the value--rising or falling--of his home. While people in parts of the country that missed out on the late, lamented real-estate boom may be unfamiliar with this affliction, in coastal markets where prices soared it's common.

This summer New York Times columnist Michelle Slatalla described how she had begun checking the value of her Bay Area home (using sites like Zillow and Cyberhome) every few hours. In a recent two-month period, the Web suggested her home had lost $92,248 in value. "I really, really need every tiny bit of information I can get about managing my biggest investment," Slatalla writes by way of justification--before consulting experts who tell her the sites aren't very reliable and she'd be better off checking her home value only once a year. Financial planners spend oodles of energy convincing stock investors not to panic-sell amid market declines. It's conventional wisdom that you're better off not checking your 401(k) balance very often. The same is true for your house value. I'm mildly obsessed with my home's value, but I only Zillow it every couple of months--and even when the numbers aren't pretty, I try not to let it upset me. After all, I have no plans to sell it.

Roger Elliott hasn't found that happy place yet. Lately he's been crunching the numbers, weighing how his declining home value--on which he's paying taxes, insurance and mortgage interest--weigh against the cost of renting a nice home. "If we have $750,000 in our house, and we walk away in three years and don't get [at least] $750,000, that means it would have been a bad decision," he says.

Roger admits his parents probably wouldn't recognize the anxiety he's feeling. "They bought a home thinking they were going to live there for 30 years and pay off the mortgage," he says. "It wasn't 'We'll live there for five years and pocket some money.' It wasn't an investment game for them." Then again, they couldn't imagine living in a $750,000 home, either. "We've kind of oversold ourselves on the need for our homes to be investments," he says reflectively. He's right, of course. And as those years of double-digit returns fade into memory, watching your home's value feels a lot like watching a young child play in his first soccer game: we should be content to love it regardless of how well it performs.

Daniel McGinn is a national correspondent at NEWSWEEK and the author of "House Lust: America's Obsession With Our Homes," to be published this winter by Doubleday. To preorder it, click here.