It’s not impossible to time the real estate market. But it’s extremely unlikely and foolish to try to do so.
The real estate market is influenced by economic factors, interest rates, capital availability, availability of loan products, local market conditions, housing supply etc…
It’s the height of narcissism to think that you’re going to perfectly align these factors and outsmart the collective intelligence of the market while you’re at it.
Oh, and let’s not forget the illiquidity of buying and selling real estate. This isn’t like trading an asset like stocks, bonds, crypto etc…where the click of a button can execute a trade. It typically takes 30-60 days to close on a real estate transaction. A lot can happen in two months.
That’s why when people ask “Is it a Good Time to Buy?”, experienced professionals will always tell you to buy whenever you’re ready.
But what does that actually mean and why is it so hard to time the market? It’s not rocket science after all, right?
First things first, you may not have to ask this question because, oftentimes, timing is really not up to you. You may not really have much of a choice in the matter.
You thought you were ready to buy until you actually contacted a mortgage lender to try and get pre-approved for a home loan. They told you that you may have to wait a few months until that item on your credit report is cleared up.
Are you comfortable and secure at your job or do you need to wait a bit to make sure you’re not part of that upcoming round of layoffs? Conversely, what if you’re probably getting a promotion…in 3 months? Oh wait, did they just tell you they’re transferring you to a new office location? Circumstances change quickly
Selling a home? Have you put it on the market yet? Is it under contract with most or all of the contingencies cleared? Deals fall apart all the time. You thought you were buying in 2 months, but it might end up being 6 months.
We’re pregnant!!! Baby on the way? Time to get out of that cramped 1BR apartment sooner than you thought.
But what if you truly have the liberty to decide when and where you want to strike?
It’s About Trade-offs
Despite what social media portrays, there is usually not a simple choice between right and wrong, good and bad, black and white. That’s not how life works.
Choices usually fall on a spectrum – a seesaw if you will, where you have to compromise on one thing, in order to have more of the other thing.
- Comfort and convenience for a higher price.
- Less-than-ideal service and experience in exchange for a lower price.
- Higher interest rate for a (usually) lower home price and vice versa.
- Perfect location for a smaller house, and vice versa…
Convenience: For example, want to wait until the kids are out of school or until the weather is nicer? Yep, so does everyone else. More competition, be willing to pay a higher price.
Nobody wants to borrow money to purchase something when it will cost them much more to do so; in the form of a higher interest rate. Nobody wants to look at houses in the middle of the winter time. Nobody wants to go the bathroom or concession stand in the middle of the game.
But by making a sacrifice on one hand, you will usually gain on the other hand. Less competition means there won’t be a crowd of people competing with you. It means no lines at the bathrooms!!
Ride the Wave
With demand constant, whenever something is not in enough supply, prices go up. Couple that with inflation, and it’s obvious that the price of hard assets will increase over time. Look at that chart below! Beautiful thing.
We get it, nothing goes straight up or straight down short term. Therefore, you’re trying to catch a short term dip, while you would be better off hopping on the wave and enjoying the ride.
You think you’re going to be the one to snatch up the small amount of foreclosures. Nope, there’s always someone richer than you who will buy it first – all cash. And you may never even know it because rich people get first crack at all the opportunities.
You can’t really dollar cost average into real estate either, like you would a stock investment. You can’t buy a piece of a house over time. On second thought, perhaps you could buy a house every year if you had the financial means to do so.
What To Do
Get the basics right, and you’ll be fine.
We already discussed how the winds of persistent inflation and supply/demand imbalance will be at your back – causing your home to appreciate over time.
There are exceptions to this rule. Housing is local and not every market behaves the same.
- If you’re in a neighborhood where there are new construction homes being built constantly with not enough people to buy them, be careful.
- If you’re in a town where the population has been declining despite the overall US population increasing every year? Be careful.
- If you’re targeting a location with persistent high crime with no end in sight, be careful.
In other words, location, location, location.
Get this right and you can’t go wrong.