Trying to time the real estate market is a common strategy among both new investors and homebuyers. Homebuyers often avoid buying a home when houses are too expensive or when interest rates are too high. However, it is important to understand that trying to time the market can be a risky and often unsuccessful approach. For homebuyers especially, but also for investors, waiting to purchase real estate is usually not the best approach. Instead, each property should be a good financial decision when it is purchased, regardless of whether the market has slight fluctuations in the future. Here are some reasons why you shouldn’t try to time the real estate market:
The Real Estate Market is Unpredictable
The real estate market is notoriously difficult to predict. It is subject to many factors that can influence it, such as economic conditions, political changes, and even natural disasters. While it is true that the real estate market goes through cycles of boom and bust., trying to time the market requires you to accurately predict when these cycles will occur, which is difficult to do. In addition, the real estate market is very slow and can take a long time to change. This is why real estate is usually such as safe investment and also why it’s a better long-term strategy. Trying to guess when and by how much the real estate market will raise or fall is difficult even for experts.
Real Estate is Both Local and National
Unlike many investments such as stocks, which aren’t overly influenced by local matters, the real estate market can be very impacted by the local economy. Real Estate is largely a local market, which is controlled as much by individual needs, local industry, neighborhood shifts, and local trends as it is by national changes such as recessions and interest rates. The majority of real estate purchasers are individuals looking for a house to live in. When you look only at national trends and market predictions you are likely to miss important changes and influences in the local and regional markets. Many local and regional markets have experienced upturns or even bubbles while the rest of the country was on a downturn or in a slow real estate market.
Missing Out on Potential Gains
By waiting for the right time to buy or sell, you may miss out on potential gains. Real estate prices can increase rapidly, and if you wait too long, you may find yourself priced out of the market. While the market is cyclical and experiences occasional downturns, severe downturns are relatively rare and most people are more likely to wish they had purchased when they had the chance rather than waiting for the perfect market.
If you are looking to buy into the real estate market for investment reasons, such as buy-and-hold rental properties or to take advantage of inflation, timing the market might not help in the long run. Investors make their money when they buy, not when they sell. That means you should be buying a property that makes good financial sense now, not properties that you hope will increase in value only if the market has an upturn.
When you are waiting for the right time to enter or exit the real estate market, you are missing out on other opportunities. Your money could be invested elsewhere, earning a return while you wait. If the real estate market isn’t a viable place to invest in right now, whether because of interest rates, your financial situation, or because you can’t find properties that are good investments, you may need to invest elsewhere temporarily. If you can find a good property and you have the money to invest in it, don’t wait. If you are finding properties that are good financial decisions at the time of purchase you won’t have to rely on a good market to appreciate your property.
Buying and selling real estate involves transaction costs, such as agent fees, closing costs, and taxes. If you are constantly buying and selling, these costs can add up quickly, eating into your profits. In addition, many seeming short-term gains are absorbed instantly upon selling a property. This is one of the reasons that real estate has traditionally been an excellent long-term investment strategy but is only occasionally a good short-term strategy. Only in a few limited situations is real estate a good short-term investment strategy, and those usually rely on a large amount of luck or skill. For example, people who flip houses aren’t relying on the market to change in order to make money, they are relying on their skill in being able to find and repair damaged properties.
Timing the real estate market can be stressful. You may find yourself constantly second-guessing your decisions, which can take a toll on your mental health. Real estate investments are usually large, meaning that most investors have a lot of money and expenses tied up in each real estate purchase. This can be more stressful for many people, especially beginners to investing, than buying cheaper investments because the stakes can be so much higher. You can invest much smaller amounts of money in other things, but real estate investments are rarely small.
Lack of Liquidity
Real estate is a relatively illiquid asset. It can take months or even years to sell a property, which can be problematic if you need to access your funds quickly. This is especially true if you are investing in commercial property or expensive buildings, which usually take longer to sell, or if the market has an unexpected downturn.
If you are relying on being able to sell a property quickly in order to make money off of it, a sudden downturn in the economy or even a local change such as lay-offs or a factory closing can cause you to lose money. Most real estate investments have large expenses each month in mortgages, property tax, maintenance, and insurance. If you hold a property for months or years longer than expected, these expenses will eat into any profit you should have received.
Real estate is a long-term investment. Trying to time the market can cause you to lose sight of your long-term goals and lead to poor decision-making. Even when adding value to a property by performing renovations and repairs, short-term real estate purchases can be riskier than long-term buy-and-hold strategies. For those with no experience in renovations and construction, the risk of flipping or renovating properties is even greater.
Real estate has historically been one of the best investments with the greatest security and gains over time. If you want to experience the greatest benefits and the fewest risks from your investments, use real estate as a long-term investment, and don’t try to time the market.
In conclusion, trying to time the real estate market can be a risky and stressful approach. Instead, focus on your long-term goals, research each market and property well, and make informed decisions based on local circumstances and your financial situation. If you want to try your hand at some short-term trading or investing, consider something that is easier, less expensive, and has a faster cycle than real estate.