Tuesday, July 7, 2009

Market Timing

Are we near the bottom of the real estate market cycle? If we are at the bottom, would you be ready to buy a new or resale home?

Without the confidence that the market is at or near the bottom, many buyers have remained on the sidelines or on the fence. They want to buy, see homes that would fit their needs, but are not ready to act for fear of missing the lowest price possible. Some buyers have time to wait, but is waiting at this point in the market really a good idea?

For the same reason that market timing is usually not a good stock market investment strategy (most financial planners would say that “dollar cost averaging” will win out for the average investor in the long run), it is important to understand the emotions most buyers go through in real estate or financial cycles.

Our retirement plan investment advisor uses the following chart to illustrate why waiting too long to get back in the market may make you miss out on increases in value.

It takes financial security to buy homes or stocks on the way down but buying near the end, through the bottom of the trough, and/or into the recovery period is a great way to buy low with an eye for the best returns. Apparently most people don’t jump back in until the prosperity period starts and they have missed out on the typical appreciation that takes place in recovery.

Everyone needs to carefully and conservatively assess their own personal situation. This may be best done with the help of financial and legal advisors. But once you know your financial abilities, consider taking advantage of a buying opportunity of a lifetime.

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