With home prices in hot markets like Denver and the Bay Area at record highs, some consumers say now is not the time to buy.
They want to buy a home, but not at these prices.
Their plan is to wait for prices to come down and then snap up their slice of the American Dream.
In effect, they want to “time” the market.
Most experts agree it is difficult, if not impossible, to time the stock market.
A house is not a stock, of course, but they call it the housing “market” for a reason.
Whether you can time a home purchase, that is, buy at just the right moment to enjoy an appreciating asset, is the topic of this month’s question and answer session between Lane Hornung, CEO of 8z Real Estate, and John Rebchook, of Denver Real Estate Watch.
The Q&A is part of 8z’s Real Estate 101 series.
John: Lane, can you time the housing market? That is before prices go down and buy before prices head up?
Let’s say you sold your home in August 2006, when prices hit their peak before the Great Recession. From a financial standpoint, you clearly timed the market perfectly.
But that only accounts for that one transaction. If you immediately bought another home because you needed a place to live, you also bought at the top of that real estate cycle.
John: Most people live in a home for seven to 10 years. Given that long time frame, is it really that important to buy at the bottom of the market?
Lane: That’s a good point. If you are an investor, you have a short timeframe to buy, fix and sell a home. In a sense you are “timing” the market, but really that is more of a financial analysis of your costs vs. what you think you can sell it for, based on market conditions. For homeowners, it’s different.
Imagine you bought a home in Denver in August 2006, which was the absolute worst time to buy a home during the last cycle. (According to Case-Shiller’s aggregation of home values that was the peak of the market, until prices recovered in May 2013.)
Let’s say you fell into a deep sleep in a comfortable bed after buying your home in August 2006 and woke up today. Guess what? You now own an asset that has appreciated since you bought it and you were oblivious to all of the doom and gloom headlines that housing prices would never bounce back.
And assuming you had a mortgage on your home, you also were able to take advantage of all of the tax deductions from owning a home, even when on paper the house was worth less.
John: What does that tell you?
Lane: Your holding power is way more important than your ability to time the market.