So, what do we do now…?
I've written posts on the folly of forecasting. A current case in point is the diverse buffet of predictions for the housing market, each one served up by an highly qualified expert running a complicated economic model. Try Peter Schiff of Euro Pacific Capital who is predicting a fifty percent collapse in some overpriced markets. A bit more optimistic? Try out David Wyss from Standard and Poor’s who is predicting for a more modest 8% drop. Or if you’re really in the market to buy then the expert you want to listen to is Lawrence Yun, senior economist from the always-sunny National Association of Realtors, who tells us that “…further declines, if any, are likely to be modest given the accumulating pent-up demand.” The only thing this forecast is missing is a smiley face emoticon.
So if the experts aren’t helpful in giving us a heads up on the market’s immediate future then what’s a real estate investor to do? Perhaps it is the right time to sit on your hands and wait it out, but it is possible that it is the time for action.
In these cases I look out my own window at the local market and ask myself one question: am I waiting for the bottom or am I waiting for affordability?
If you’re waiting for the bottom them it might be the right time to start searching for deals. If you’re waiting for affordability then you might want to hold off for a while.
I’ll explain:
Bottom fishing: I had the opportunity to see Pete Sampras play at Wimbledon back in 1997. Of all the incredible things that I remember about that match one thing stands out: Pete always knew when a ball coming his way was out of reach and he didn’t try for a shot that he couldn’t get to. There’s an analogy here for real estate investors. When you’re aiming to buy at the bottom the only thing that you know is that you won’t ; you’ll buy too early or too late but either way you’ll never hit the bottom of the price trough. So why try?
If you’re bottom fishing then you’ve already reached the conclusion that a recovery is looming. So don’t try to time it. If market conditions are such that you can get a good price from a motivated seller, and bag an investment that yields positive cashflow then it might be the time to go for it.
Waiting for affordability: You might find yourself thinking gosh, prices have risen so fast in the past few years it’s just natural that we're finally getting a bit of a correction. If they just dip a little more then it will be a great time to get in.
If this is your view you’re probably betting on the good old days coming back again; this is a a highly speculative postion. Investors with this viewpoint often live in markets where it is impossible to find a real estate investment that produces positive cashflow – and in this type of situation a property must experience booming appreciation rates in order to yield a decent return. These markets, in my book, get the yellow light.
Don’t fit into either of the camps above? Then what signposts do you look for…?
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