After yesterday’s less than stellar day on Wall Street, I couldn’t help but think of this post that I wrote back in October 2006.  A mortgage broker had a suggestion for  his clients on how to deal with a cooling housing market. He recommended that they suck the equity out of their homes and invest it other places like their 401K and the stock market:

Congratulations on your decision to own real estate!

Housing prices have appreciated at record levels in recent years, so you were wise to make this investment. On average, housing prices have risen over 56% nationally during the five years ending in June 2006. Some homeowners have even seen the value of their home increase over 100% during this same period.

Times are beginning to change, however. It was just announced that for the first time in 11 years, national housing prices fell in value. Not only did home prices fall 1.7% compared to a year ago, the price decline was the steepest in 38 years. Last week, USA Today reported that the National Association of Realtors projects that prices will continue to fall through the end of this year. The reason for this projection is that home sellers are reluctant to reduce their asking prices even in the face of rising inventories. With more homes for buyers to choose from, those homeowners who have to sell may do so at lower prices.

What does this mean to me?

Now is the time to think about the future for you and your family. As home prices are starting to decline, there may never be a better time to reposition your equity and employ those funds elsewhere.

Consolidating non-tax preferred interest accounts, including charge cards and automobile loans, can free up cash flow to devote to savings and provide a cash cushion for emergencies.

Three out of five people do not have an IRA account. Nearly one in three people do not participate in their company’s 401K program. There is no better time to start investing in your future than today.

In many cases, homeowners who restructured their debt have saved over $700 a month in cash flow. By investing these savings into an investment vehicle yielding 8.00%, your money will grow to over $1 million in 30 years. Stocks have earned 12% on average annually in the post-war era. Obtaining a similar return on a $700 a month investment would result in your money growing to nearly $2.5 million.

I wonder how his clients are doing now?