2006 was the year of the slowdown in many real estate markets throughout the country. In fact, December median sales prices for my local market posted a return to January 2005 levels. But perhaps this figure isn’t completely bad. For years, buyers have been willing to purchase a home with no or little money down – counting on home value appreciation that would allow them to refinance in a few years to get rid of PMI.

As the market slowed in 2006 to negative appreciation, perhaps some of the drop in median sales price represents a “wake up” to buyers who otherwise might have been willing to purchase more home with riskier financing. With the number of foreclosures and bankruptcies on the rise and expected to continue grow in the next few years, many financial experts feel Americans are too thinly stretched. The biggest culprit: often their homes. A big house and a fancy car are part of the American Dream for many people. But it can be exactly those two things that cause the dream to turn into a nightmare. Nationally, 34.9% of homeowners were considered “house poor” in 2005 – paying mortgage payments that exceed 30% of their monthly incomes.

But when the real estate party ended in late 2005, it may have signaled a change in the wind for high-risk mortgages. Buyers can no longer count on steady appreciation to take care of PMI or to provide a nice lump of equity if the payments become too difficult to bear. This might be just the circumstance many buyers need to become more financially responsible.

What do you think? Will the downturn in the market serve as a wakeup that will help push buyers away from high-risk mortgages and homes they can’t afford?