Sunday, April 21, 2019 / by Kimo Quance
Why Timing the Market is a Fruitless Effort
Investing in real estate works like investing in anything else. You need to buy low and sell high if you are going to profit. The tricky part is being able to predict when the markets will be at their lowest. This is a difficult task for even the most seasoned investors.
That being said, there are always signs that prices of real estate are trending lower or higher any at given time. The hard part is determining when those trends are going to reverse.
Making things even more difficult is determining where you get your information and who to believe. Understand that the majority of what you see in the real estate and financial media space is useless information. These media properties, including newsletters, cable programs, and videos, are meant to capitalize on either fear or greed.
Instead, take the time to find the raw data on your local markets, and perform the analysis yourself. This will go a long way in understanding the scope of the market and help you in identifying any possible trends.
Avoid the mistake of applying the of the stock market to housing. The stock market goes up exponentially, as soon as you have the money, you should invest in the market. Housing, on the other hand, does not grow exponentially with inflation.
A real estate investment is one of low liquidity. The basis for the investment is to earn the highest return on investment as quickly as possible. Consider a scenario where you buy at the low end of the market. If you want higher returns, you're going to have to wait for the market to swing upwards.
The problem is, timing the upswing can be extremely difficult, if not impossible. It could take months or years, for real estate markets to change. Even if predicting an upward trend in the market where possible, you would likely hold the property for longer than you want to. This will result in your holding costs eating into your profits.
Think to invest in a neutral market is a good idea? Wrong. Prices are just as likely to go up or down at any given time, depending on any number of unpredictable factors. Purchasing for investment in a seller's market is risky because you are likely buying at a higher price. If you are buying at the top of the market, prices are more likely to go down than up.
Consider the Case-Shiller Home Price Index drop in December 2008 that occurred right in the middle of the housing crisis. If you could have purchased real estate on that anywhere in the U.S., you still would have held onto that property for several years before being able to flip it for profit. The housing market didn't bottom out until 2012. Leave timing the markets to experienced investors.