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I don't normally post on this board, but I was thinking about this today and wanted to get some input..realtors, buyers and sellers alike, and even those who are plain old RE junkies.
I hear a LOT of "you can't time the market - you won't know if it's bottom until it starts climbing again, and by that time you've missed it". Wouldn't you agree that phrase is uttered frequently?
My question to those who use that phrase and those who have heard it....let's think back to the last bust of the early 90's. When *exactly* was the bottom, what was the window where buyers got the rock bottom price, and at what point were buyers "out of luck" getting the best deals?
I admit this is a loaded question, and responses may vary based on location.
I would say, for my area (Northern NJ generally), bottom was between 1992 and 1997, and you 'missed' the bottom somewhere around 2002 (as of today, prices are still dropping so who knows what this will be in a year).
I hear a LOT of "you can't time the market - you won't know if it's bottom until it starts climbing again, and by that time you've missed it". Wouldn't you agree that phrase is uttered frequently?
It's uttered frequently because it's true. There are two variables ... price and time. Price can be adjusted, up or down; time only moves in one direction - forwards.
The thing is that if I'm buying "high" now because the prices end up dropping 10% in the next year, then what difference is there compared to buying 10% above the bottom because now that folks realize "the bottom arrived" and everyone is jumping on the bandwagon to buy?
Contrary to the past few years, buying a house is a long term aspect. If you are in a demand area, the house you're looking at is what you want, and the numbers and price are fine, forget about timing and just go for it.
It's uttered frequently because it's true. There are two variables ... price and time. Price can be adjusted, up or down; time only moves in one direction - forwards.
The thing is that if I'm buying "high" now because the prices end up dropping 10% in the next year, then what difference is there compared to buying 10% above the bottom because now that folks realize "the bottom arrived" and everyone is jumping on the bandwagon to buy?
Contrary to the past few years, buying a house is a long term aspect. If you are in a demand area, the house you're looking at is what you want, and the numbers and price are fine, forget about timing and just go for it.
i contend, based on history, you can time the market, but i'll wait for more responses to my actual question.
I disagree. You can time the market to a certain degree, not with razor precision in hitting the absolute tippy top or rock bottom, but you can buy and sell with pretty good assurance that you are so close to the peak / floor that you can feel pretty good.
There are several keys. Some are easy to plan -- selling a house in very good to excellent condition at a time when there are the MOST BUYERS active in a region is a seasonal thing that helps tremendously. You can then lay on the data about trends in prices at your level -- as others have noted there is much better activity now nationwide in lower priced homes than it move up homes. I suspect that move up homes may still be several years out from having appreciable gains.
As for "buying", there one has to time AGAINST the flood of bank owned / distressed sellers which seem to the slowing their entrance to the marketplace, but it is far from completely worked out. As those 'crazy cheap' deals become rarer the odds of prices moving up will increase dramatically. In areas with a history of tight inventory there are some signs that this reversal will be swift. In areas with higher levels of inventory, and areas where new construction is relatively easy to restart this will probably be a more gradual shift. The trends to watch are LOCAL and subtle. Time on market is GENERALLY a good yardstick, but you have to be familiar with the nature of some 'habitual high listers' -- even in boom times some sellers (and some agents) had a habit of so overpricing their properties that long TOM was common for them. You have to manually factor those type listing out so that you don't skew a rapidly shortening TOM for realistically priced homes.
The smaller the area under consideration and the more diverse the housing stock the HARDER it is to say that the "magic price" were set by broader conditions vs the qualities of a particular home -- some truly charming, unique homes change hands for a very high price at the precise moment that some other dog is snapped up for a bargain blow out...
In my neck of the woods, eastern DuPage, peak was generally about 33-40 months ago, floor may have been sometime right around the late Feb, when the new administration was still in its "worst economy since the Depression" mode.
I believe prices in Oak Brook will continue to drop overall, though some of those firesales may be off the table now. Prices in Itasca continue to drop slightly. I think median price may be moving up slightly, but that is because more expensive homes are being bought and sold, so the mix has changed more than prices going up. This is certainly the case in California now.
I think you can somewhat time the market as we appear to be headed into an L shaped recovery. You may not hit the bottom exactly when you buy but if you overshoot it no big deal as prices are not looking to rebound anytime soon.
Generally speaking real estate markets do not experience V-shaped recoveries. Flatlining is typical.
As it relates to northern NJ.....prices remained relatively flat almost a decade, last go around. This however, was variable by county and within county.
Ridgewood, Montclair, Short Hills and Summit were the first to trend from a depreciating to appreciating market.
But when looking at market timing, you will for the most part be better off if you miss the bottom and buy again on the way up than if you buy before hitting the bottom.
Assume a $300,000 home today - if you buy and the market drops 10%, your home is now worth $270,000. It then takes 3 years of 4% appreciation to get back to your original purchase price. So the year of decline plus three years of appreciation is needed just to get back to even (total of 4 years). And that is a very optimistic appreciation - historically homes hit bottom and stay there for a few years before appreciating. So realistically, you are probably looking at 6-7 years to break even.
Then if you have to sell, (commission and closing costs average 8% in our area) meaning that my home must be worth $324,000 just to break even. Using our optimistic option, you need 6 years just to stay even. And if prices stay flat for 2 years before appreciating, you would need around 8 years, just to break even.
If I miss the bottom and don't get in until there is a 4% increase, the $300,000 home that dropped to $270,000 and then increased 4% is now $280,000. If I add in renting at a lower price than I would pay in mortgage until the market stabilizes, I really come out ahead.
I don't think you can time the market, but when you are in a declining market, why try to hit the bottom? Wait until you see the market stabilize and or even show gains before buying.
Now if you are buying and selling in the SAME market, it shouldn't matter. What you might lose on the selling side, you should gain on the buying side. And if you are buying up in house, your gain on the buying side should be greater than your selling side loss.
I prefer to at least put SOME elbow grease into the equation. Rarely does a home magically move in lock step with trends. If you do some fixing up you beat the curve, if you let your place detoriate 'the curve" BEATS you...
There is another factor that begs the question as to why wait for the bottom? Using a previous poster's example, is it better to buy a house for 300k with 4.5% interest or wait and be able to buy the house for 270k but the interest rate is 17%? I think interest rates are critical when trying to determine the best time to buy.
There is another factor that begs the question as to why wait for the bottom? Using a previous poster's example, is it better to buy a house for 300k with 4.5% interest or wait and be able to buy the house for 270k but the interest rate is 17%? I think interest rates are critical when trying to determine the best time to buy.
But historically, when interest rates go up house prices go down. My guess is that rates will stay low for at least another year. So that home is still going to be worth $270,000 in a year with interest rates being lower. At that point, if rates go up that dramatically, that $270,000 home is only going to go down some more to make it affordable at 17% interest.
To be honest, that is one of my fears. Homes currently depreciating will really depreciate if interest rates spike.
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Chet I disagree somewhat
