The impact of falling home prices on home equity values has been well documented; but now, other areas are being affected, as well.In the board game Mouse Trap, a crank-operated device sets off a series of events that ends with one player getting stuck in the trap. Today's real estate industry seems to have its own game of Mouse Trap going on, as falling home prices create unexpected consequences that can catch homeowners, local governments, renters, and property investors off guard. Incredible shrinking home equity Through the end of September 2008, the Standard & Poor's/Case-Shiller home-price index had fallen more than 23 percent since its highpoint in 2006. That equals an average decline of $23,000 for every $100,000 of original home value. The impact on household home equity has been striking; existing home equity credit lines have been cut or canceled, and thousands of homeowners have fallen underwater on their first mortgages. Existing homeowners and new homebuyers are also facing opposition from lenders in securing equity-based financing going forward. Property tax appeals galore Declining home values carry at least one silver lining in their clouds: lower property taxes. Homeowners may get an automatic reassessment, but it's more likely that they'll have to appeal to realize such savings. The amount of the reduction will vary, depending on when the property was last assessed. New homebuyers won't see a huge difference, but those who purchased in 2005 and 2006 could come out with a substantially lower tax bill. Unfortunately, these savings will come at the expense of local governments. Already, many agencies are cutting services, laying off employees, and imposing furloughs to adjust to changing economic conditions. Further reductions in property taxes will widen those budget shortfalls. Rental market madnessThe home rental market is getting a nice boost from anemic home values-mainly because no one wants to sell their property when market prices are so weak. People who don't have to sell are choosing to take rental income while they wait for property values to recover. Existing rental property owners are feeling the extra competition as more homes become available for rent. At the end of January, The New York Times reported that rents in the Big Apple were dropping fast. Landlords in other smaller communities, however, are still reporting steady demand from well-qualified renters. A combination of factors may be contributing to this trend, including the unstable housing market, uncertain job outlook, and a tight lending environment. Those who feel that buying a home right now is a touch scary are content to rent until economic conditions change. Sliding home prices have set a lot of wheels in motion, and those wheels are impacting far more than home equity values. Local governments, renters, and property investors, as well as homeowners, are going to feel the brunt until this housing market recovers.