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Could Real Estate Lead the next Recovery?
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What could lead the economy back from the brink? Would you believe Real Estate?
As politicians go on an unprecedented spending spree to resolve the financial meltdown that started with the sub-prime mortgage market, Denver's real estate market showed new signs of life in September. The market is doing what it's supposed to do. Prices are falling, activity is increasing, at least in Denver. Most of the rest of the country shows no such signs of a turnaround...yet.
However, if you're a money manager or ridiculously wealthy individual trying to preserve that wealth, where do you put it? In the dollar? With the Fed dropping truckloads of cash on the world markets to try to resolve the financial crisis, inflation is a big threat. In the stock market? How do you value a stock when you have no idea what their future earnings might be? What interest rates might be? What the government is going to do next? In commodities? Maybe a bit, but with the whole world slowing down economically, demand is dropping, still not a safe bet.
Real estate is tangible and it's cheap. Nothing is risk free, but buying properties at deep discounts from a year or two ago at least limits your downside. It was the collapse of real estate prices in the early 90's, after the Savings and Loan debacle, that kicked off a new period of economic growth. One man's tragedy is indeed another man's opportunity. When panic drives prices down to previously unimaginable levels, there's money to be made. At some point, people with oodles of dollars stuffed under their mattresses at the moment are going to want to put it back to work. The smart ones will put it where there is the most upside potential. I've got to believe real estate is the easiest choice. Not mortgage backed securities, not real estate investment trusts, but the actual hard asset.
Whatever happens in the financial markets, humans need space. If you can afford to wait this thing out, picking up a piece of property or two over the next 12 months may be a better way to go than praying for your 401k to come back.
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