Is there a double dip recession on our horizon?  Retirees who have been planning for years to move to Sequim or Port Angeles are engaged in serious contemplation on this subject.  We’ve already seen 401(k) funds become 201(k) funds and the uncertainty about the future has created a lot of stress.

Double Dip Recession Looming?

The question some retirees have asked me is this:  Is now a good time to buy a home in Sequim, or should we wait?  This is the question, isn’t it?  Are we going to experience a double dip recession in the coming months?

I’m no seer, nor am I the seventh son of a seventh son, but I will share my humble opinion from 30 years in the real estate business.  I do have a degree in Economics with a special emphasis in monetary policy.  I’ve been a legal and business consultant to hundreds of businesses as an attorney, and I’ve been involved in hundreds of real estate transactions through several real estate cycles.  To be sure I was competent to advise my law clients, I became a registered financial adviser (Series 7) as well as a certified estate planner and licensed in life and disability insurance.  I also have a Doctor of Jurisprudence.  Having told you all that about myself, let’s admit that there are plenty of Ph.Ds out there and very smart talking heads with opinions that are all over the map.  No one knows for sure what the future holds, and certainly not me.  I think education can get in the way of common sense sometimes.  One thing for sure is that the threat of a double dip recession has created uncertainty for many retirees.

The Economics of a Double Dip Recession

If you watch the depressing news daily, you will be quite familiar with the economic dark cloud that hangs over America, despite political hype by those who don’t have a clue.  To listen to some of the so-called experts about the state of our economy or how to solve our economic woes, and to listen to their prognostications of the future, one might think some of these folks are geniuses who are so much smarter than the rest of us.  Alas, such is probably not the case.  If I may make an attempt at humor, many of these politicians seem to have both feet firmly planted in mid-air.

What are retirees to make of this uncertainty, and are we going to see a double dip recession?  With no adult supervision in Washington, we just might have a double dip recession, and with that possibility, should a retiree move to Sequim and buy a home and settle down?

Double Dip Recession Doesn’t Scare Retirees

Here’s what many retirees who are far wiser than me have been sharing.  “We don’t know what the future holds, whether we are at the bottom in the real estate market or not, whether the economy will recover soon or not, but we do know we aren’t going to put our lives on hold any more.  We are 62 and 64 years old, and we don’t know how many good years we have left together.  We decided to make our move and retire in Sequim.   We intend to live in this home for the rest of our lives, so we aren’t buying now for the appreciation.  If we have a double dip recession or a depression, we still feel that living in Sequim is the best move and the best place for us to enjoy our retirement with the time that we have together.”

I like that kind of life wisdom and thoughtful response.  Maybe our economy will recover soon.  Maybe we will see a double dip recession.  Maybe the real estate market will be slow to recover, and maybe the DOW will break resistance at 10,000.  But one thing about real estate compared to stock or other paper investments is this:  real estate doesn’t disappear on you or suddenly lose all its value because of variables beyond your control.  If there is a double dip, Sequim is one of the safest places to be in the United States.  Crime is low.  One can have a vegetable garden and there is plenty of beef on our farms here.  We have fish, the ocean, and the mountains.

And one more thing.  Life is short.  I intend to make the most of it while I can.  How about you?

Double dip recession or not, real estate is a safe investment in my opinion.

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They preached long term investing in the stock market,
the gurus, the brokers, those Wall Street tokers.
I invested my hard earned money
so I could grow old and take care of my honey.

What I didn’t know is they were greedy,
the gurus, the brokers, those Wall Street tokers.
While I chose conservative funding,
they sold derivatives with their cunning.

They lost my savings and my future,
the gurus, the brokers, those Wall Street tokers.
But they went home with billions,
While my government spends trillions.

While I worked 40 years, they partied on their yachts,
the gurus, the brokers, those Wall Street tokers.
I carefully invested in WaMu, GM, and Microsoft,
But then I didn’t count on greed and fraud and Madoff.

So I’ll sing a song, a favorite of my youth to
the gurus, the brokers, those Wall Street tokers.
Hi ho, hi ho, off to work I go, I’m screwed,
I’m screwed, I’m screwed, I’m screwed, I’m screwed,
I’m screwed, I’m screwed, I’m screwed.

Oh, wait, I don’t have a job anymore.

[By Chuck Marunde, J.D.]

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If you had a million dollars to invest, where would you put it right now (under your mattress is not an acceptable answer)?   Well, you definitely would not want to put it in the stock market.   You know I’m going to say that real estate is safer and more secure in the long run, but do you know why?   I’ll give you two reasons, both of which are rock solid.

Reason No. 1.   Real estate goes up and down, but nothing like the volatility of the stock market, and your 401(k).   This past 12 months alone, individual investors like you have lost trillions of dollars in value in the stock market because of economic conditions.   I hear retired people saying things like, “My mutual fund is down 30%,” or “We are really worried that we’re going to have to go back to work again.”   On the other hand, a home that has lost 30% in value this year (down to $420,000 from $600,000) may have been purchased 15 years ago for $175,000 (as is the case with many people).   But that real estate is solid, and still an excellent long term investment.   As a matter of fact, in my area homes are only down 5% to 15%, depending on the precise location and features.   (more…)

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In every crisis there is opportunity, and for those hurting, maybe now is the time to consider that opportunity may help offset losses.   Cash is king in a crisis.   It always is.   There are tremendous opportunities in the stock market, but of course, none of us can be sure which stock that would be.   The risk is extraordinarily high.   But real estate is a buy, and the risk is a fraction of the risk in stocks.

By the way, there are two major industries that are going to take hits in this market:   1.) financial advisors and money managers, and 2.) real estate brokers and agents.   This is a no brainer, but watch for many offices in these two industries to close in the next six months.

There will be opportunities to pick up businesses in trouble or the stock of companies that are grossly undervalued, and there will be many.   One author, Jim Dines, said it well.

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You can buy real estate for your IRA instead of stock.   That sounds pretty attractive right now, and a lot of people are taking advantage of this option.     What’s the advantage?   Many folks are talking about how their retirement funds in the stock market are down 30% to 40% right now.   While real estate dropped in most areas of the country, too, the drop is very small.   For example, in King County, Washington, houses are down 4% from last year.   That’s pretty stable, if you consider that a house bought in King County in 2000 for $241,000 has a FMV today of $430,000.   That $430,000 is only down $19,670 (4%) from last year.   That beats an IRA in the stock market hands down.   Real Estate is more stable.   Always has been.

An IRA custodian may allow you to purchase raw or vacant land, residential properties, or commercial buildings for your portfolio.   Some custodians will permit foreign property or leveraged property.

Since buying a property may require more funds than you currently have available in your IRA, you also can have your IRA purchase an interest in the property in conjunction with other individuals, such as a spouse, business associate, or friend.   If the property is leveraged, the debt must be a non-recourse promissory note.

The Internal Revenue Service will not let you use the real estate owned by your IRA as your residence or vacation home, nor can your business lease space in your IRA-held property. The underlying premise for any real estate investment purchased with IRA funds is that you can’t have any personal use or benefit of the property.

There are a few other IRS limitations as well. You cannot place real estate you already own into your IRA. Your spouse, your parents, or your children also could not have owned the property before it was purchased by your IRA. Property owned by siblings, however, may be allowed, since the Internal Revenue Code (section 4975) specifies that only “lineal descendents” be disqualified.

This is an excellent option for those who are seeking a more stable long term retirement fund and who have confidence in real estate.   As I look back on real estate over the past 30 years, it has been consistently appreciating and even in economic downturns, it still holds its value much better than stocks.

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None of us bought tickets for the roller coaster ride we are all riding.   We’ve been going up and down and wondering if we are at the bottom yet.   I have words of encouragement for you.

We are near the bottom, but not quite there yet.   Before it gets better, it must appear to get worse.   The worse will come in this fourth quarter and the first quarter of 2009 when many economic government reports (employment, consumer price index, industrial production, business inventories, housing sales, new construction, interest rates),   and thousands of corporations report their quarterly results, including earnings reports ((There will be thousands of disappointing earnings reports.   For example, here is a short list of just next week’s report to come:   On Monday, Halliburton will report before the market opens, and Dow member American Express, SanDisk and Texas Instruments will be out after the closing bell.   Several Dow components will be out with results on Tuesday, including 3M, Caterpillar, DuPont and Pfizer, all of which report before the start of trading.   Tuesday’s late results will be headlined by Yahoo!, with E*Trade, Boston Scientific and VMware earnings also on tap.   Wednesday will bring another busy earnings day, with Dow components AT&T, Boeing, McDonald’s and Merck all set to report in the morning.   Also due early Wednesday are quarterly results from ConocoPhillips, EMC, Freeport-McMoRan, Philip Morris and Wachovia.   After Wednesday’s close, tech giants Apple, Amazon.com and Baidu.com will report, in addition to Sallie Mae and Amgen.   Thursday will bring earnings releases from Dow component Altria, Bristol-Myers Squibb and UPS in the morning, among others. After the close, Microsoft will headline the late reports.   Friday’s release calendar is considerably lighter, with Ingersoll-Rand and Ericsson   headlining the earnings reports. )), losses, and layoffs.   Meanwhile, there will be more companies going into convervatorships or filing for bankruptcy protection.

Let’s admit the obvious right now.   All of that news will be ugly.   We know it will be.   How does the stock market and consumer sentiment react to ugly reports from the public and private sectors?   Like a child in Kindergarten, the stock market always tanks with bad news.   I can guarantee this is true.   It always is.

And then, it comes back.   While I am not big on governement intervention, we do have literally trillions of dollars that governments around the world have committed to shore up threatened markets.   Many industries and segments of our economy will struggle, and some companies will be gone when the roller coaster comes to a stop, but we will not only survive, we will eventually be thriving again.

Be of good cheer.   We will be okay.   For now, you and I need to take a deep breath and say, “This too shall pass.”

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