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August 31, 2005 at 08:00 PM
Financial planners faced with questions from boomers about a pending real estate bubble need to separate froth from fact and discuss such a possibility and the impact a pop could have on what is for most a sizeable part of their net worth, several planners say.
“Next to what car you drive, everyone is talking about how much equity they have in their house,” says Phil Cook, a certified financial planner with Cook & Associates, Torrance, Calif.
But, beyond the boomer cocktail banter, it is an issue that should be addressed, he adds. Boomers who are thinking of buying want to know if they should wait, while those thinking of selling want to know if they should do it now, Cook continues.
“Excesses of anything, whether fashion or finance, tend to mark the end of a period,” he notes.
Cook describes a discussion he had with one couple who talked about borrowing equity and buying property in Las Vegas with the intent of flipping it. “When they got through with me, they were not talking about that.”
To help clients who have questions about getting in or out of the current real estate market, Cook gives them a history lesson on California real estate, which he says “softened considerably” in 1973-74 and in 1989-90.
“Many,” he continues, “cannot at this point see a reason for a decline, but that does not mean that it is not there. It just isn’t apparent yet.”
The discussion also can lead to other worthwhile conversations such as whether a mortgage should be paid down more quickly, Cook adds.
“We get questions on the bubble very frequently. Every day we address the issue,” says Jim Holtzman, a certified financial planner with Legend Financial, Pittsburgh. When the question comes up, it is not so much about selling but about buying a second home, he adds.
A discussion about a real estate bubble is not a distraction to financial planning efforts, he says. What can be distracting is when a client wants to pull money out of a portfolio to buy in a heated market, he says.
Questions are both specific to boomers’ financial plans and a general effort to understand the nature of the current real estate market and the national economy, he adds.
It is important to listen and to understand what the specific concern is, Holtzman says.
And that concern can vary depending on whether the client owns a commercial or residential real estate investment trust or an actual property, as well as in what part of the country the client lives, he adds.
