With tremendous waves of uncertainty about the future of the country, so far as economically, environmentally or politically, many potential home buyers are becoming less confident about whether to invest in real estate at the present time. Some people are nervous about an impending recession, while others are terrified as to who will be running the country come next January. And then there are folks in areas of the country rebounding from devastating natural disasters such as Hurricane Matthew’s impact on the eastern coast of the U.S., flooding in Louisiana and wildfires across California.
So what do I tell my clients when they ask the inevitable question, “When is the best time to buy?” I always tell them the best time to buy is when you have the need or desire. Trying to time the real estate market to hit that opportune prime buying time, is like rolling the dice at a casino. The truth is that the prime time to buy has a lot more to do with the circumstances going on in your life than what everyone else is or isn’t doing. You may have been relocated by your job or hired for a new position. Your family could be growing, or you recently became engaged and will be getting married in the near future. These life events generally precipitate a change in your housing needs, and could present a need for you to buy.
When working with a buyer on the fence, I also ask them what they would do with their money in the bank, if they don’t buy. In other words, if they are looking to purchase more so out of a desire to invest in real estate, they are seeking a way to make their money work for them. If they choose not to purchase a property, what would their alternative game plan be? I would advise them to look at potential rates of return on real estate prospects versus their alternative investment strategies. Many of the buyers who fall into this category don’t have an alternative plan or see the obvious alternatives, such as the stock market, as too risky. I would then point out that keeping their money in the bank won’t even keep them ahead of inflation.
People will always try to time the market to capitalize on their investment, but in trying to do so, you may be ignoring factors that are much more significant to you. Lets say you are currently renting, but want to buy during the next downturn in the market. You could be waiting for years, meanwhile throwing away your money in rental payments being applied towards someone else’s mortgage. If we look at StreetEasy’s latest market report for August 2016, the median rent in Brooklyn is currently $2,932/mo. That’s over $35,000 annually, which could be applied towards equity in a property rather than flushed down the drain, while you’re waiting for the market to drop.
Furthermore, we find ourselves in an unprecedented time of historically low interest rates. What I mean is they can’t get much lower, and they can really only go up. When you break down the concept of interest rates, you begin to realize that a potential price break of say $50,000 dollars on the average home price of $926K in Brooklyn (according to the Corcoran Q3 Market Report) doesn’t save you money if it occurs in the future when interest rates are even just a point higher. That interest hike over the course of a 30 year loan will cost you over $80,000. Meaning you would be $30K ahead by paying $50K more for the property when interest rates were a point lower.
This is precisely the reason why trying to time the market can be a fruitless endeavor. The best time to buy is when you have the need or desire to buy. A better pursuit would be to strategize what kind of property will best suit your needs, enabling you to build equity, create passive income and make your money work for you!