Financial advisers continue to work overtime to steer clients through the biggest housing slump in decades.
Financial advisers continue to work overtime to steer clients through the biggest housing slump in decades.
Consider one 60-year-old retired client of Scott Tiras, a senior financial adviser at Tiras Pennington & Associates.
The client wants to buy a $600,000 condominium unit in Florida by putting $220,000 down and carrying a $380,000 mortgage. A mortgage company has rejected her application because it considers the income on the $1.4 million investment portfolio managed for her by Mr. Tiras to be inadequate — despite written assurances by him that the portfolio generates $5,000 a month in income and can easily do so for at least 20 years.
In response, the mortgage company recommended that the client buy an annuity to provide guaranteed income, a suggestion that Mr. Tiras rejects.
“They've gone way overboard, requiring guarantees even for individuals who are well-qualified,” said Mr. Tiras, who is writing a second, more strongly worded letter in hopes of getting the mortgage company to cooperate.
A client of Mr. Tiras' who owns four heavily mortgaged rental properties in California faces other real estate problems.
The mortgages on all four exceed the market value of the properties. Worse, the client is having trouble finding good tenants, forcing him to scramble to meet mortgage payments.
Mr. Tiras can do little to help this client, except to make suggestions — such as finding at least some short-term tenants — and to keep the remainder of the portfolio as liquid as possible.
“He needs that liquidity to take care of the negative cash flow,” Mr. Tiras said.
Like Mr. Tiras, many advisers are dealing with clients who are disillusioned, disappointed and struggling to cope with the reality of lost home equity and the possibility of not being able to realize their retirement dreams.
“They're immobile, and they have to get used to it,” said Robert Fragasso, president of Fragasso Financial Advisors.
If a client talks about selling, perhaps to move to a retirement dream home, Mr. Fragasso responds: “The question is, "At what price? How long are you willing to wait, and at what price are you willing to sell?' I don't have any answers; I have questions.”
Even housing-market experts have more questions than answers.
Robert Shiller, professor of economics at Yale University and chief economist at MacroMarkets LLC, conceded as much when he participated in a recent conference call discussing the latest moves in his Standard & Poor's/Case-Shiller Home Price Indexes.
He and his colleague Karl Case, a professor of economics at Wellesley College, dismissed the indexes' second-quarter improvements as one-offs due to tax credits. They both think that housing prices will likely fall further.
“It's an exceptionally uncertain time,” Mr. Shiller said. “It looks a little bit precarious right now.”
Mr. Case provided his own downbeat view, noting that given the “interdependence of the economy and housing market, it's not clear which is the dog and which is the tail.”
Unfortunately, explaining the implications of a depressed housing market is a job that often falls to advisers.
“When clients come in and we ask about the value of their home, they say, "It used to be $700,000,'” said Karen Altfest, principal adviser at Altfest Personal Wealth Management.
“There's a sense of: "I had this, and I lost it.' They heard that number, and they thought they owned that number,” Ms. Altfest said.
“They had an inflated sense of worth. It added to a certain financial mystique, and to their happiness,” Ms. Altfest said.
She said that she is firm about using today's more realistic home prices, and in most cases, clients re-spond with a kind of grim acceptance.
Part of the discussion with clients should be to remind them of why they bought a home in the first place, Mr. Tiras said. It wasn't seen as a sure-thing investment but rather as shelter and an expression of family needs and taste.
As a result, Mr. Tiras takes a hard line with any client who talks to him about potential investment returns.
“I tell them to buy a house be-cause it's where you want to live,” Mr. Tiras said. “Don't come in telling me you think it's a great investment.”
