Real estate prices are prone to cycles. That is why timing is so critical to the real estate investor. But in order to determine when the proper time to buy is, the investor needs to be educated and spend the necessary time analyzing the market.
But one question remains - is the average investor good at timing the real estate market?
There is no doubt that this can be difficult, even for the seasoned real estate professional. The investor needs to be aware of many of the factors that assist in correctly timing the real estate market.
Now over the long term you are almost assured to make money in real estate. But if you are looking to make the best use of your money, timing is critical.
There are many boom to bust cycles in real estate. There are often short term periods of substantial price increases followed often by shorter term and less volatile periods of price declines. This is often followed by periods of flat to small increases. The difficult part is determining when to buy and when to sell.
Obviously, you want to buy during the flat period just prior to the next substantial increase. This is often difficult to determine. But if you study long enough, you can often spot the signs that assist in timing the real estate market.
Signs of a market top:
- The media is publicizing that "everyone is making money in real estate";
- There is a lot of liquidity in the market, with easy qualifying mortgages and plenty of creative financing options;
- Publicly traded homebuilders are reporting "record" profits;
- Homeowners have seen recent substantial appreciation and still believe that real estate will go much higher over the short-term; and
- New home sales and building permits are at recent highs.
Signs of a market bottom:
- Delinquencies and foreclosures are at multi-year highs;
- Mortgage financing has become "tight" as fewer lenders will fund real estate transactions;
- The average homeowner believes that real estate will go lower over the near-term;
- The media is publicizing "how difficult the real estate market is"; and
- Building permits and new home sales are at recent lows.
Now I don't want to make it appear that it's easy for the average investor to be good at timing the real estate market. It certainly is not. But if you study the markets and examine the signs you will be a step ahead of many other investors. That may give you all the edge that you need.