It’s a legend as old as time. Someone tries to time the market, and fails miserably.
Then they miss out entirely, or chase an opportunity that doesn’t exist and perhaps overpay in the process.
Recently at dinner, a friend of mine told me a story that seemed worth sharing.
It was about two families who sold townhouses, but only one bought another property, and the other rented.
And guess what. Almost five years later, the tenant is still hiring.
It’s Hard to Find the Right Time, Especially in Real Estate
The year is 2019. The housing market has seen tremendous gains since the 2012 foreclosure (see this chart from the FHFA for more on that).
Home prices had doubled in many markets across the country. For sellers, it seemed like the perfect time to cash out and move on.
Of course, if you sold your primary residence, you still needed a new residence. This meant renting or buying another home.
A friend of mine had her first child and was expecting her second. Like many young families, they had bought a small townhome to get their feet wet.
But now it was time to find a bigger place, and move from the urban area to the suburbs to raise their family.
The good news is that their town home has gone up a lot since they bought it.
This meant a good portion of the money available for sale and easy sales, and the cheap goods and buildings that were in high demand at the time.
It also meant finding a place to change, which was no small feat for the same reasons.
Fortunately, they were able to find a nice place in a single-family home in a desirable neighborhood near their in-laws within a good school district.
Meanwhile, their old neighbors who lived in the same area also sold their townhouse. But instead of buying another property, they choose to rent in the suburbs.
The husband told my friend that he was “going to wait for house prices to come down,” since they had gone up.
Now I can’t fault the guy anymore. I remember how prices felt like bubbles back then, before they went up another 50% during the crisis.
But banking on discounting and choosing to rent also comes with a lot of uncertainty.
Home Prices Rarely Fall
The thing about the “wait for prices to go down” approach is that they rarely go down.
That’s not to say they’ve never gone down, but home prices are pretty sticky. There have only been a few instances where they have fallen on a nominal (non-cash) basis.
They fell a lot in real terms, but still, it was very unusual. Either way, home buyers don’t look at home prices in real terms.
The prices they see on the list are unusual. In other words, if the price was $500,000, and now it is $450,000, they will see it fall.
If it was $500,000, and now it’s $505,000, but inflation makes that $505,000 worth something like $495,000, it doesn’t provide much relief to the potential buyer. It is still high in their eyes.
The problem is some people have a recent bias because of the housing crisis of the early 2000s when housing prices fell. And they think it can happen again. It’s possible, but again, it’s rare.
Now back to the story. Guy decides to rent while my friend buys a new home. This was in 2019.
Since then, the price of my friend’s house has increased by more than 50% because he got a good deal and had to do some work on the property.
He also got a 30 year mortgage rate in the top 2 so his monthly payment is very cheap, even though he bought when “prices were high” in 2019.
Another guy is still hiring, almost five years later. And guess what? Rent is not cheap. So it’s not like you got a huge discount in the process.
You know what else is inexpensive? Housing prices. Or local prices. Yes!
If a Tenant Buys Now He Will Feel Like He’s Paying Too Much
So the hiring guy tried to time the market. And it didn’t go well, at least with the benefit of hindsight.
There is nothing wrong with renting, but this particular family does not want to rent. They want to have a home.
Especially since they have children in local schools and want stability and peace of mind.
The problem now is that home buying has fallen out of reach, due to high home prices and very high mortgage rates.
For example, a $500,000 home in 2019 may be closer to $750,000 today. And the mortgage rate is 6.75% instead of 3%.
That would increase the loan payment by about $2,200 per month, assuming a 20% down payment. Not to mention the huge down payment required.
Even if you can still afford it, this guy probably has a lot of reservations as he failed if it was cheap to buy.
To that end, he will likely continue to time the market and wait for a better opportunity. One that may not come.
Read on: Time Heals All Real Estate Wounds If You Let It
Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the mortgage process. Follow me on Twitter for the latest.
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