Why it's good to purchase in a down market

In a red hot market, prices are appreciating, credit is easy to come buy, and everybody is making a bundle. People are in euphoria and are purchasing houses without truly analyzing the market and forecasting changes. The only sure thing is that real estate is cyclical in nature and will have peaks and valleys. Emphasis should be placed on the fundamentals.

People who purchase in a hot market often expect appreciation to be the sole measure of return and have a short time horizon. As an asset class, Real Estate is an extremely risky investment in the short run because of high transaction costs, illiquidity, and market inefficiencies. With a long term time horizon, returns generated from tax deductions, rent (or enjoyment of ownership), amortization, and appreciation increase. Depending on the motivation for purchasing, individual’s financial strength, and time horizon, buying in a down market is offentimes less risky than buying when the market is “good.”

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