Reacting to the Market? Pick Your Strategy.

If you need any further evidence that real estate values are dropping and credit markets are in a tailspin, simply look to Saginaw, Michigan, where a woman recently bought a house for $1.75 on eBay. She beat out seven other bids.

Or look to New York City, where builders can’t find credit for projects they thought banks had already approved, blue chip corporations are putting off plans to move, owners of skyscrapers are worried about rising vacancy rates, and apartment rents are dropping, according to a recent story by The New York Times.

Or look nationwide, where average house prices experienced record declines in all 20 of the largest cities over the past year, according to the S&P/Case-Shiller home-price index. Sunbelt cities Las Vegas and Phoenix each famously dropped by 30%. But even cities that traditionally were immune to boom-and-bust real estate cycles, including Minneapolis and Cleveland, fell by 13 and 7.8 percent respectively.

What does any of this mean? In a week it may mean little, if Congress approves the Wall Street bailout plan and if banks get a large infusion of money for their now-worthless real estate investments (two big ifs). In the meantime, what to do depends on your financial situation:

Do you have a stack of cash lying around?
So does Warren Buffet, who recently bought $5 billion worth of Goldman Sachs and $3 billion worth of G.E. Do you know a smaller blue-chip property near you––maybe a house or small commercial property––that is ridiculously under-valued? Consider buying it now, if you think its value will rebound once the markets recover.

Feeling lighter in the wallet?
Sit tight. Don’t make any big purchases, maybe put off an expensive move. Now is not the time to be taking on more debt.

Does your 401(K) have fewer zeroes than it did last week?
If you’re young, sit tight. Regular contributions to your retirement plan now will have you buying at the perfect time, when the market is low. If you’re nearing retirement, things get trickier. Either way, though, you should consult a trusted financial advisor.

Photo credit: AP Photo/The Saginaw News, Melanie Sochan

Comments

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Buy low and sell high. Now is a great time to invest if you can. I know that I am looking at some properties that are severely undervalued.

The current economy will eventually turn around, it is really only a question of when.