A question that is asked pretty often by a lot of people who might be thinking about buying a home but is not necessarily in a rush. A lot of folks might have a lease that extends for six months, or they’re living with their parents or living with somebody. They’re thinking, “Well, I don’t necessarily have to rush in and buy a home right now.”
Essentially, the question is, whether to try to time the market and buy at a time when things slow down?
In the middle of October 2021, the market has been crazy hot. It’s been very on fire all year long. And only right now are we starting to see little signs of a slowdown and homes that used to get multiple offers, maybe get a little bit fewer offers, or just one offer or even no offers at all. And so things are slowing down a little bit.
Usually, the number one answer to that question is no, you should never time the market, you should not try to predict what’s going to happen tomorrow. Because even the smartest people in the world, economists and professional realtors who have been doing this for 40 years plus and business owners, entrepreneurs, etc. Nobody can predict the market no matter how smart they are. Because there are so many variables and so many things to think about. You should never try to time the market.
But when it comes to the question of should I buy now or should I wait, that’s more of a personal preference.
The most important thing to distinguish is that for a lot of people, you are putting your life savings or a big chunk of your life savings into a property. It’s very easy to get caught in the trap of thinking that this is an investment.
Getting Stuck in the Trap
The reason why it’s called a trap is that distinguishing real estate investments, which for example are multi-unit properties in different areas, higher cash flowing areas, or potentially a flip opportunity, which is something that you will not be living in and is not something for your family. It is ideal to separate the real estate investments from the real estate purchase that is for you and your family, for your personal use and enjoyment.
And although it’s really important to think about how your investment is going to appreciate over time, what’s most important is to understand that you do only live once. And when you’re ready to buy a home for you and your family’s enjoyment. And you’re thinking about where you and your kids and the dog and friends are going to enjoy the backyard and the swimming pool or the condo association amenities, or how you’re going to remodel the kitchen, or how you’re going to have the bathroom, or how you’re going to enjoy your house, that’s a completely different set of considerations from the investment side of things and whether the property will appreciate.
Timing the Market
The reason why it’s important to think of it that way is that when you’re thinking about timing the market, and whether you’re buying at a good time or a bad time, what you’re doing is speculating. And speculation is not a good thing. Because if you’re thinking about buying your own house, there will always be a better time to buy. And there will always be a time where the market is a little bit slower. But what if the perfect house that is perfect for you and your family to live in, does not come out at that time when it is the perfect time to buy?
What if now there’s a hiccup in the market and prices have dipped 10% but at that time, there is no house that you love, the floorplan you love. The area is in a great school district, it’s close to shopping and parks, it’s in the community you want it to be in. Trying to time the market in that way will inherently cause a lot of issues because then you’re going to wait, wait, wait until you find the perfect time, and then what’s going to happen is you’re going to realize which most people inevitably do that there is no perfect time. And you may regret not writing offers on properties that you would have loved for a price that maybe was a little bit more than you wanted to pay. Maybe it was a more competitive market at that time, and then you decided, “Hey, I should have bought that house because it would have been a perfect place for me, my family to live and create memories and enjoy our time and have a good life.” Versus “Oh, it might have not been a good investment at the time.”
It may not be the best answer that’s out there. But usually, the most important thing to do is always to distinguish and separate your investments, your real estate investments, your stock investments, the things that you should not have an emotional attachment to, versus your home for you and your family, which you inherently do have an emotional attachment to. So those things should be separated.
And for the downpayment and the mortgage payment that you paid for a house that you’re going to live in, the number one consideration is, don’t think about the investment or the long term appreciation, which long term appreciation will happen just due to inflation. And because you can’t really build homes here anymore, we don’t have a ton of land here in the San Francisco Bay area to be able to build a lot, the long term appreciation will happen but look at the investment that is for your family’s future, for the fun times that you’re going to have, for the enjoyment that we’re going to get out of your house, and consider that in a sense of a sunk cost rather than a something that I am looking at as an investment long term.
As always, we remain committed to helping our clients achieve their current and future real estate goals. Our team of experienced professionals are happy to discuss the information we’ve shared in this video and blog post. We welcome you to contact us with any questions about the current market or to request an evaluation of your home or condo.