“What’s going to happen with the market?” “Is now a good time to buy?” I get these questions often, and of course the questioner is hoping to find out if the real estate market is going to continue in one direction or go in another. My answer to these future predicting questions is always the same, “The one thing I know for sure is the market will inevitably change.” Of course, predicting the exact top or bottom of a real estate market cycle is…impossible. But, you don’t need to pinpoint the next top or bottom exactly in order to “Time the Market”.
My theory is a simple one, “don’t worry about predicting the future, just focus on the recent past”. Meaning, although you may not be able to predict the exact date of the next top or bottom, you can roughly determine those specific points in time once they have occurred. And that is valuable information.
Think about it like this… if the market has declined significantly over the past year or past few years, then the one thing you know for sure, if you decide to buy a property, is you didn’t buy at the top of the market. Or, say you miss the bottom and the market starts to rise, as long as you decide to buy before the market hits a new all-time high then, again, at least you know you didn’t buy at the top of the market.
This idea may sound like a simple one, and you are right, it is… But you would be surprised at how many buyers do the complete opposite when deciding on a property purchase.
Looking closely at market trends, you will notice that the number of transactions decreases as the market values start to drop, and the number of transactions increases dramatically as prices spike and create new all-time highs.
So why do the majority of buyers follow this pattern? Typically it has to do with a combination of things, such as changing economic conditions, average salaries, unemployment rates, etc.; but worry and panic are often the main reasons.
As the market goes up and down I often hear questions and statements like these: “why would we buy in this horrible declining market?” and “if we don’t buy now, prices are going to continue to rise and we will get priced out of the market!” These fears are common reflexes to the changing market. Therefore, through the many real estate cycles over the years it has been apparent that when prices in the market are declining, buyers tend to worry that they are going to keep declining, and unfortunately they usually decide to avoid diving in. Then as prices are heating up and hitting all-time highs, buyers tend to panic and typically jump into the fire blindly.
But don’t worry and don’t panic. Just be patient, because the one thing I know for sure is the market will inevitably change.