Is it possible to time the market?
Written by Susanne on June 11th, 2008
Buy low and sell high – what a great concept and a great formula for accumulating wealth! The trouble is, how do we know when the high is high and the low is low?
Trying to time the real estate market is a difficult if not impossible proposition. The only formula I have found that truly works is to invest in homeownership for the long term.
According to the national Association of Realtors the national median price of a single-family home in 1998 was $128,400. For 2008 the estimate is that the national median will be $213,700.
What does this tell us? It’s a good reminder that while in the short term prices may rise and fall, in the long term they are most certain to end up higher.
One of the main reasons for this is the demand. Mark Twain once said, “they are always making more people, but they ain’t making any more land”. And the US Census Bureau seems to agree. According to PopClock the population of the US increases by one person every 11 seconds. By 2050 our nation’s total population should reach 400 million, compared to 304 million today.
Trying to time the market is a futile endeavor, but if you purchase for the long term you will benefit – and you will benefit in more ways than one.
One of those benefits is Uncle Sam’s favorable tax treatment. By being able to write off your mortgage interest payments on your tax returns, you save hundreds of dollars in taxes annually as compared to someone who rents. Also when you sell your home, the profit (capital gains) is tax-free in many instances.
Need I mention that you also have more stable housing costs than a renter? Plus owning a home is a form of forced savings – by making monthly payments you are able to build your equity over time. A renter builds his landlords equity.
Still many are sitting on the fence trying to recognize the right moment, the perfect opportunity to plunge in and buy a home. They try to time the market.
Is it worth the wait? In addition to financial benefits, there are other benefits. The freedom, the ability to personalize your own space – having more space! Not having to deal with a landlord or share walls with noisy neighbors! Actually knowing your neighbors as opposed to having them change every few months.
And the economy changes over time. Since 1983 we had two relatively long periods of economic expansion, and only short periods of recession in between. That represents an average up-and-down cycle of ten years.
Even if you could predict the future, with the peaks and valleys, would you want to wait 10 years to buy? You could miss out on many benefits of home ownership by waiting and still end up paying a higher price in the end.
