For spenders, down market has upside
Market woes may lead to significant deals and discounts on travel, cars and other big-ticket items.
This post comes from Kelli B. Grant at partner site SmartMoney.
After watching the markets fall, it may be hard to consider spending the money for a fancy vacation or a new car. But if history is any guide, the correction of 2011 could lead to some good deals -- for those who still have the stomach for spending.
While consumers who made an impulse purchase before the market upheaval began last week might have buyer's remorse, there may be good news for those who waited: Prices are expected to fall in coming weeks as automakers, retailers and the airlines try to keep consumers from going into hiding. In 2008, that's exactly what happened. In the weeks and months following the market crash that year, airfares fell, cash-back car deals jumped and holiday retail deals reached a whopping 80% off as consumers cut back their spending.
This time around, the deals may not be quite so staggering. The crash in 2008 was "a major economic shock and not one that was anticipated," says Randy Allen, associate dean for The Johnson School at Cornell University. Comparatively, this correction has come as slightly less of a surprise.
On top of that, the last downturn was relatively recent, and many businesses are still running a hard-times operation, with tighter inventories and lower costs. That makes them better prepared if demand gets sluggish -- they won't need to offer substantial sales to stay afloat. Post continues after video.
So for those planning a trip or a splurge, there may be discounts in the offing. Here's a guide on what big-ticket purchases to make and when:
Travel. There's no reason to buy a plane ticket right now, says Tom Parsons, chief executive of BestFares.com. "Sit on the sidelines, check the fares and wait until the deal comes to you." It almost certainly will, say experts, as airlines try to keep planes at capacity.
In 2008, it took a little while for airfares to respond: In the last quarter of 2008, airfares dropped almost 4%, but then plunged another 13% over the first half of 2009, according to the Bureau of Transportation Statistics. This time around, prices may fall steeper and sooner, pushed lower not just by the economy but also by falling fuel prices and the end of summer vacation for kids. (Some airlines have stopped charging airline ticket taxes, because the Federal Aviation Administration is unable to collect them.)
Also, cutting fares is really the airlines' best recourse at this point, Parsons says. In 2008, they were also able to cut back on flights, and they're still running slim schedules. "The only thing they can do is bump fares down," he says.
Cars. A late start to summer clearance sales already led analysts to suggest waiting a few more weeks to buy a new car. Now it's an even better idea. "This (uncertainty) could really dampen enthusiasm and motivation for buying cars," says Lacey Plache, chief economist for auto pricing site Edmunds.com. Automakers could heap a bit more cash onto current offers before Labor Day.
But deals, which averaged roughly $2,400 per vehicle in July, are unlikely to reach the $2,600-plus levels of 2009 or 2010. Because supply is limited, automakers are also unlikely to feel as desperate as they did in 2008, when the crash's accompanying credit crunch prevented would-be buyers from getting auto loans.
Wedding. Autumn wedding in the works? This would be a good time to ask your caterer, your florist and your chosen site "if they're in a mood to deal," says Alan Fields, a co-author of "Bridal Bargains." Canceled corporate parties and extra-frugal couples in 2008 prompted many caterers and reception sites to sweeten the deals for weddings, offering discounts and throwing in extras like free cake or wine.
That year, couples planning a wedding several months out and dealing with vendors in advance cut their wedding spending by 24%, to an average $21,810, according to The Wedding Report, a market research firm. In 2009, they cut bills by another 10% to $19,580. Market fear could generate similar results this year, he says.
But venues and other vendors are unlikely to cut listed prices -- at least not yet -- so it's up to the bride and groom to shop around and ask if the tough economy has opened up any room for negotiation, Fields says.
Retail. Retailers started off the summer expecting to offer fewer holiday deals. That isn't likely to be the case anymore, say experts. Although stores have been conservative with inventory since 2008, they may still have more than they'd like, Allen says. Stores will likely wait another two weeks or so to see how long the markets stay bad and whether consumers truly cut back; they'd like to get through back-to-school season before adding additional discounts. "You'll see good bargains, but not crazy bargains," she says.
But if the economy continues to worsen, consumers could be looking at a repeat of the big holiday sales of 2008 and 2009.
Remodeling. Recent economic events suggest that the housing market may not rebound anytime soon. In which case, start shopping for a contractor to redo the kitchen. In mid-July, before the latest market dips, Harvard University's Joint Center for Housing Studies projected a 4% increase in remodeling spending through the first quarter of 2012. That may not hold, says Kermit Baker, director of the center's Remodeling Futures Program. "Uncertainty is not good for remodeling."
Plus, he says, paying for home improvement in cash is growing more common, and homeowners are more likely to hang on to money they have (compared with the credit-fueled remodels of a few years ago). This means more contractors are likely to bid on your project, giving you a shot at lower rates, says Baker.
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