Timing the Market is Next to Impossible



Some investors and retail buyers try timing the real estate market. That’s pretty much impossible although there a few things to be aware of. With hindsight, you now know that prices have been increasing for the past three years. What you can’t know is when there might be a sudden increase in prices.

What you do know is that unemployment is back at “acceptable” levels and even low enough that some employers are starting to raise pay rates for employees that want to retain. People that were forced to trade their middle-income job for a burger-flipping job a few years ago are moving back up the employment ladder. These people will almost certainly be entering or reentering the homeowner market soon. More demand means higher prices.

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Price Probably Going Up

It may come as a surprise to some but recessions have become increasingly rarer since the Great Depression. More regulation of banks, the stock markets, and better business management are attributed to the decrease in the frequency of recessions. With that being stated, the time before housing prices head down is likely to be years away. Prices are likely to continue appreciating for the foreseeable future.

With interest rates still low but inching up, now is probably the best time to make a real estate investment or purchase a home. The Federal Reserve has been holding interest rates artificially low for five years. The Fed is now loosening its grip on interest rates. You can expect rates to continue heading north and probably at a more rapid pace than they have over the past year.

Do the Math

Taking out a $200,000 mortgage for home today with a 4.5 percent fixed 30-year mortgage locks your monthly payment in at $1,013.37 (not including taxes and insurance). Total interest that you’ll pay over the length of the loan comes to $164,813.42.

Now, compare that to what it will cost you if you wait until average interest rates are 5.5 percent before you make the move to purchase or invest. Your monthly payment goes up to $1135.58. An increase of 122.21. That might not seem like much but the total interest over the life of the loan goes up to $208,808.08. An over all additional cost to you of $43,994.66. Of course, it’s likely to be more than that because the purchase price for the same house will almost certainly be higher.

If you had purchased that home a year ago when it was selling for $190,000 and interest rates were 4 percent for people with good credit, your monthly payment would have been $907.09. That’s $106.28 less per month than if you bought today and $228.49 less per month than if you wait until interest rates hit 5.5 percent.

It’s rarely possible to time the real estate market. You could wait for the next recession to drive house prices down. However, if that doesn’t happen for another five years and prices continue increasing at 6 or 7 percent annually but only fall 5 percent during the recession, you’ll still be paying more for the house in the future than if you bought today.

About the only thing you can do now is wait for the hot spring and summer buying season to pass and hope to find a desperate seller during the slow winter season. But who knows where prices and the interest rates will be by then?

BioAuthor bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.

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