Waiting for the Bottom

Sounds quite simple, right? Wait for housing prices to bottom out and purchase a home at the lowest price and then sell at the top of the market. The problem is, due to market inefficiencies, one never knows when the market hits rock bottom, until it is too late. It is extraordinarily difficult to forecast the market with any degree of certainty. Real Estate is affected by too many unpredictable factors.

Unlike the Capital Markets, information is quite sparse and difficult to obtain. Real Estate is affected by micro factors that may influence an extremely small market area, limiting the usefulness of broad market indicators like the S&P Case/Shiller and OFHEO house pricing indexes. Due to issues of liquidity and costs, transactions are few and often reflect past market tendencies. Prices for homes can reflect negotiations in a market environment several months and even years before the actual closing and reporting of the figures. Contrast this with stocks where companies are regulated and must regularly disclose financial statements. Shares are traded in real time with new prices reflecting changes in market behavior.

It is important to differentiate between speculation and true market analysis. Investigate how stable your financial situation is, reflect on your motivation to purchase or sell, and then decide on a time horizon that is commensurate with your goals. These are factors that should be weighted more heavily than the speculative stance of waiting for the bottom. Otherwise, one might be waiting for Godot!

Any questions or for FREE customized Market Reports, automatic email updates on properties that fit your criteria, or Realtor Referrals, please EMAIL ME or call me at 734-478-9270. -Anwell Tsai