Paradise Lost?

I had lunch with a friend on Thursday and we were talking about the economy (during our 90 minute lunch, the Dow dropped 500 points!). We both came to real estate from different careers, so if our local market’s bottom dropped out, we were discussing what else we could do.

My friend is a tad negative, and she was certain that we were in for immediate doom.  I am a little ton more positive about things, so I don’t think we’ll have to worry anytime soon.  The Tri-Cities is truly somewhat protected, in the sense that all real estate is local, and locally, our economy is strong.  The only fly in the ointment as I see it, is that with our increasingly shrinking world, the butterfly flapping her wings on one side of the world can cause a tornado in the next hemisphere.  If the world’s markets start collapsing, no one will have any money to buy any homes anywhere, and that includes here, unless someone literally finds a gold mine out in Badger Canyon.

But negative attitudes DRIVE. ME. NUTS.  I’ve heard people all week wringing their hands and wailing,  “My retirement account has dropped 39%!”, “I’m thinking of withdrawing the full amount of my home equity line and just sticking it in the bank now to tide me over…”, and even Jim Cramer issued his surprising admonition to take your money out of the market if you’re going to need it in the foreseeable future.  Wow.

Here’s the thing – it’s not like the guy with the retirement account had a million dollars last week and now has $600k.  He never REALLY had a million dollars.  The person cashing out the home equity line – they might withdraw that loan now, but it’s not real money, based on actual value.  When they go to sell the house, they’ll have to pay it back, and if the market doesn’t cooperate with their plans, they’ll have to find that money elsewhere.  You can’t conjure it up.

The stock market and real estate are similar in that values are based on the best guesstimate of worth in the event of an immediate sale.  Every brick and board in your house does not correlate to an ounce of gold.  Every shingle does not correspond to a share.

Fortunes can be lost in weeks like we’ve just had.  The crash of ’87 caused my boyfriend’s dorm-mate to wail, “My parents are financial toast!”  If you are part of a margin call, you’re in a world of hurt.  I understand that.  However, the vast majority of Americans, and certainly Tri-Citians, are fine, and are not lining up for soup any time soon.

Read this article in Newsweek which says it all very well.  You never really had the money – so you haven’t lost anything.