Posted by GL(ON) on July 16, 2002 at 12:24:59:
When the pendulum swings too far one way, it will swing back the other way.
I have been through the boom and bust of the 70’s 80’s and 90’s. In my opinion the boom of the 2000’s is just starting. I speak only of my own area. Here prices bombed in early 90, started to firm up around 92, and have been slowly recovering until about a year ago when prices reached the 1990 level in some areas. Now all the talk is about the shortage of rentals, high prices, and when is the boom going to go bust. You always get that at the start of a boom. Then it goes on for several years and prices reach ridiculous heights. Then all the media experts “prove” that prices have reached a permanent new high level and will NEVER go down significantly. That is the signal to get out. Within a year or 2, prices bomb again, probably triggered by some new government policy aimed at solving a temporary problem that occurred 2 years ago.
The best way to “time” the market is to be a value investor like Warren Buffet. Real estate has a certain value too, usually it sells at a reasonable level, but sometimes it gets ridiculously cheap and sometimes it gets ridiculously dear. It is best to buy when it is cheap and sell when it is dear. This is harder to do than it sounds. Psychologically, it is very hard to go against what everyone around you believes and in practical terms, banks make it easy to buy when prices are peaking and hard to buy when prices are on the bargain counter.
So, buy low and sell high.
It is a little ridiculous to try to “time” the real estate market because it moves slowly but in big chunks. There is no one on the evening news saying “Your house went up $18 today but the supermarket on the corner went down $215”. Real estate doesn’t go up $18 or $215. It sits there and sits there, and after you own it for 10 years you are surprised to find out it “suddenly” doubled.
If you wait around until prices take off before you buy you will miss all the best bargains. Then, psychology takes over. If you were scared to buy when prices are cheap, you certainly aren’t sucker enough to buy after prices have gone up 30%. Then you sit there and watch them go up another 200% or 300% over the next 4 years. When I say you I mean me, I have been there and done it but I didn’t even get a T shirt.
Now I believe in buying when prices are cheap and everything is doom and gloom but it is hard, hard.