Real Estate: Seven Smart Strategies

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This decade saw a huge runup in prices in many markets, but prices can also stay stagnant for long periods of time, as they did in the 1990s. From 1990 to 2000, home values on the Case-Shiller index grew less than 3% per year, while stocks on the S&P 500 grew more than 15% annually..

5. Think carefully before buying a second home.

As they approach retirement, many Americans think about relocating—to the beach, to the mountains, to a warmer climate, to a place closer to downtown. To try this out, many buy a second home while holding on to their primary dwelling.

Planners say this is a very expensive move. If you're not careful, doubling your housing expenses can put a big strain on your budget.

Plus, what if your second home doesn't work out? Many retirees move to a new community only to find they don't fit in there or miss home. A better idea may be to first take long vacations in a new spot and then rent for a while. "Usually we encourage our clients into a slow transition, rather than a sudden move," Ramnani says.

If you're going to be spending only a small part of the year in a secondary location, Preston says it makes sense to rent rather than buy. Unless you'll be spending more than three or four months at the vacation place, "it's not worth it," she says. "You can usually get a nice rental place these days."

6. Beware of alternative strategies.

There are ways to profit from the value of your house while you're still living in it. But they get mixed reviews.

One way to tap into your home equity is with a home equity loan. By borrowing money against your home's value, you can then invest it in the stock market or other investments. "It's a very risky strategy," says Mark Rylance, a planner at RS Crum in Newport Beach, Calif. If you invest in a flat or down market—which the stock market could well be for the near future—"it can be pretty brutal."

Getting better reviews are reverse mortgages, where a lender pays a homeowner as it takes ownership of more of the home equity over time. However, there are limits to this product: It's relatively new, and fees can still be too high, planners say. The reverse mortgage market is "not mature yet," Rylance says. Also, it's better for older retirees; those 55 to 65 may be expecting another 25 or more years in their homes. Finally, a reverse mortgage can make it tough if you want to leave your house to heirs.

7. Deal with falling prices.

As a planner in the formerly hot real estate market in Orange County, Calif., Rylance sees a lot of stress among homeowners worried about their plummeting home values. In the past, a popular strategy was to sell an expensive home for a nice house at half the price in places like Oregon, Nevada, or Idaho.

Now, many have put off plans to move. "People are waiting," he says.

If you are forced to move or really want to sell, Ramnani advises cutting your price early to win a buyer rather than letting a property sit on the market. The carrying costs of a vacant home can be hefty, and you're also losing out by not being able to invest that money elsewhere. It's "the cost of missed opportunity," she says. "You have all this money stuck."

Amid falling home values, there is some consolation. "They are going to sell for lower now, but they're also going to buy for lower," Preston says.

It can be painful to sell for less than you think your home is worth, but sometimes it's better to cut your losses and move on. And with home prices expected to continue to fall, you may soon be able to snap up a good deal in a popular location.

Steverman is a reporter for BusinessWeek's Investing channel .