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Bad economic news continues to dominate the newspapers and other media. Just this morning, the New York Times ran a front-page story about the arrest of two Bear Stearns fund managers for misleading their clients into investing in subprime mortgage-backed securities. Our dollar is at a new low against the euro and other currencies, while the price of oil continues to rise. It seems to me that we must all understand now that our way of life is undergoing a drastic change.
How do Americans invest, especially in real estate, when there is so much uncertainty in the country? While the New York market continues to be remarkably strong due to foreign investment due to the dollar’s decline against other currencies, the rest of the country is still experiencing weakness and, in some cases, still declining in value.
The way to form an investment strategy is to first understand the emerging fundamental shift in America’s position relative to the rest of the world. While our economy remains the largest and most integrated in the world, in the future you will not be able to intimidate others into doing your bidding by sheer force of will. Today, due to our government’s failure to have anything like an energy policy for the past 35 years, there is a colossal transfer of wealth from the United States to the oil-producing countries. Historically, we have been fortunate that those countries have invested their earnings in the United States as our economic growth was more consistent and predictable. Our financial markets were also the most stable. Nor is it the case already attested by the construction of new investment in Dubai and elsewhere.
With the price of oil at historically high levels, the US can no longer afford to have an SUV in every garage and home miles from workplaces, schools and stores. Unfortunately, many Americans are slow to embrace the changes that hamper our lifestyles … for us, bigger has always been better in everything from cars, houses, RVs, and jewelry. The American dream must change to a more affordable and sustainable one. Therefore, real estate continues to offer strong investment opportunities, but I advise you to consider energy efficiency, proximity to employment, and size when considering which home will appreciate the most.
The United States and its citizens must truly learn to live and work in a global economy. Even real estate, which was generally considered to be more affected by local problems, is now increasingly linked to external factors. When putting your money into a property, think broadly about national and global economic fundamentals and carefully about your personal financial situation to ensure that you can manage the costs associated with the property. Real estate will continue to be an important component in individual investment and financial portfolios, but purchasing decisions must be evaluated differently than they have been evaluated in the past. By conducting that careful assessment, you will ensure the future health of your portfolio.