During the last two years the country has experienced an upward shift in the housing market. How does this affect home owners today? For years, home owners have typically viewed real estate as one of their largest assets. However, we’ve learned during the last housing bubble, it can also be our largest liability.
The housing downturn that started in 2007 got home owners to view real estate in a very different way, specifically, those who planned on using their equity to help support their retirement. When it comes to financial planning it’s important to consider all aspects of growth assets as well as liabilities. There must be a balance and the understanding that our assets can become a liability.
Real estate investments are illiquid and because of this we must be more cautious when including it in our retirement plan. As a financial advisor, I typically do not consider the equity in a client’s real estate as a primary source for retirement or the possibility of selling the asset for short-term planning. As we’ve seen in the last few years those who needed the equity from their home for retirement had difficulty in getting to it due to low home values. This can put a significant strain on retirees when they fall short for their retirement goals.
Real estate has certainly taken a turn and home owners are starting to feel better about their home values. Hopefully the market will continue to improve as this may give home owners more choices for life changing events such as selling for a new job opportunity, down sizing or upgrading their home, and moving for a better location, especially retirement.
In short, our real estate will move upward and downward but experiences such as the recent housing bubble will change how we think about investing, selling, or buying. Remember, to look at all aspects of assets and liabilities and the possibility of change. Taking this approach will help investors to plan for a level of unexpected markets, allowing us (as investors) to be more prepared for market shifts.
Michael Cochell is associate vice president for Jacob Gold & Associates Inc. Contact him at 480-998-4653 or firstname.lastname@example.org.