Timing The Bottom of the Real Estate Market

One of the big questions in the current real estate market is whether there is a bunch of money on the sidelines. This brings us to the subject of timing the bottom of the real estate market.

Timing is the great white elephant, the unicorn and various other mystical creatures. It refers to the act of taking action at just the right moment. In baseball, it is getting your swing just right to hit a home run. In sales, it is making your pitch at the perfect time.

In real estate, timing is usually a non-issue. The real estate market traditionally has been the turtle to the hair. It just putters along in a generally positive direction. There might be dips every couple years or so, but real estate has been shown to appreciate consistently over the years.

Then a new century started.

The first eight years of this century have seen the most volatile of real estate markets. Price and appreciation rose to unheard of rates for the first five years. Alas, the pendulum had to swing back and it has. Now they are coming down at a similar rate. While this has resulted in foreclosures and ulcers for many homeowners, it has also created a pool of buyers who now view timing as being very applicable to the real estate market.

What are they trying to time? The bottom of the market. Home values have been falling pretty dramatically. Will they fall more? If so, how much? These are all questions that people sitting on cash are trying to figure out. It is an interesting intellectual game, but it has definite risks.

The problem with timing a real estate market is there is no way to know when the bottom or top of a market occurred until many months after it occurred. The raw data is just not produced fast enough. The same goes for the economy. This is why you hear “experts” saying we might be in a recession. They don’t know because there isn’t any hard data as of yet. When the data comes out, they can then look back six to nine months to see what happened.

If you are contemplating timing the market on a purchase, be careful. Real estate trends are notoriously fickle. Local markets are volatile. In San Diego, for instance, an odd situation has developed. Homes over $1,000,000 are generally seeing a solid market and price values are down only slightly. Homes valued under $1,000,000, however, are getting pounded. San Diego is an extremely expensive market, so there are a ton of homes over a million dollars just to make sure you understand this is a meaningful comparison.

It may be time to step back and view the market as a whole if you have been trying to time it. Anyone buying a house these days is going to get a great deal. Prices are down. They might go much lower, but they also may not. What will definitely occur, however, is they will come back up. Anyone buying a home today, may see the value double in the next five years. Why? Because people always need a place to live. This makes homes a great investment in the long run.