So, what do we do now…?
I’ve discussed in the past the folly of forecasting. A good case in point is the diverse smorgasbord of forecasts for the housing market, each offering served up by an immensely qualified expert running a sophisticated model. Go with Peter Schiff of Euro Pacific Capital who predicts a fifty percent collapse in some high priced markets. A little more optimistic? Go with David Wyss from Standard and Poor’s who is looking for a more modest 8% drop. Or if you’re ready to buy then the guy you want to listen to is Lawrence Yun, the senior economist from the always-optimistic National Association of Realtors, who happily tells you that “…further declines, if any, are likely to be modest given the accumulating pent-up demand.” The only thing missing is a smiley face emoticon.
So if the experts aren’t useful in giving us a heads up on the market’s direction then what’s an investor to do? Well it might be the right time to sit on your hands and wait it out, but it might be the time for action.
In these situations I look out the window at my own local market and ask myself a question: am I waiting for the bottom or am I waiting for affordability?
If you’re waiting for the bottom them now might be the right time to start looking. If you’re waiting for affordability then you might want to cool your heels for a while.
I’ll explain:
Bottom fishing: I got to watch Pete Sampras play at Wimbledon back in 1997. Of all the amazing things that I remember about that match one thing stands out: Pete knew when a ball coming his way was out of reach and he didn’t go for a shot that he couldn’t get to. There’s an analogy here for investors. When you’re shooting for the bottom the only thing that you know is that you won’t hit it; you’ll buy too early or too late but either way you’ll never buy at the bottom of the price trough. So why try?
If you’re bottom fishing then you’ve already come to the conclusion that a recovery is ahead. So don’t try to time it. If market conditions are such that you can negotiate hard, get a good price, and secure an investment that yields positive cashflow then it might be the right time to go for it.
Waiting for affordability: You might find yourself thinking gosh, prices have run so hard in the past few years it’s just natural that they’ve finally taken a breather. If they dip a little more then it will be a great time to get in.
If this is your view you’re probably banking on the good old days coming back again, a highly speculative move. Investors with this viewpoint are often living in markets where it is impossible to get into a real estate investment that produces positive cashflow – and in this situation a property must experience booming appreciation rates in order to yield a decent return. These investments, in my book, get the yellow light.
Don’t fit into either of the camps above? Then what signposts do you look for…?
Related Posts:
