Much like the prices in the stock market, the prices of properties in a given neighborhood can cycle up or down, based on external variables. Hypothetically, you can use these swings to your advantage—especially if you’re considering buying a new home or selling your old one.
The idea goes like this; you sell your home just as the prices in your neighborhood are starting to rise, and buy a new home in a new neighborhood where the prices are still low (but poised to move up). That way, you maximize the appreciation and profit you turn on both homes, ultimately putting you tens of thousands of dollars (or more) ahead of the game.
But is timing the real estate market in a given neighborhood a sound financial strategy?
Price Fluctuations
Everyone has a prediction for how the real estate market is going to change in the near future. Some people predict it to be a buyer’s market, with excess volume and low prices, while others predict it to be a seller’s market, with low volume and high prices. But the prices within a specific neighborhood can largely ignore these broader trends.
It doesn’t matter if, nationwide, the average house increases in price, when your specific neighborhood has seen a recent streak of break-ins and your school district just got downgraded. In some ways, this makes it easier to time the market; you’ll be closer to the variables responsible for the price fluctuations, and can get a better sense for how they’re affecting the community. In others, this makes it harder; you’ll have less data to work with, and shorter cycles to monitor.
Still, like any game of “timing the market,” you’ll be taking on significant risk. Just because a trend is moving in one direction doesn’t mean it will stay moving in that direction, and just because a trend has been running a long time doesn’t mean that time is about to run out.
Factors for Fluctuation
You can predict the fluctuations in your neighborhood a little better if you’re familiar with the major variables that dictate those fluctuations. These are some of the highlights:
The Expert’s Eye
Still, even numerically measuring some of these variables won’t be enough to allow you perfect market timing. If you want the full picture, and better insight into what’s a true value and what isn’t, it’s a good idea to get an expert on your side. Only after years (or even decades) of buying and selling real estate do you learn how to spot a good deal, and know almost instinctively how neighborhood prices are going to develop. If you’re trying to manage things on your own, you’ll run the risk of making a huge mistake.
The Cost of a Bad Decision
What’s the worst that could happen? That all depends on the price of your house and how wildly the price fluctuations can get. If you bought your house for $150,000, and you see it appreciate to $180,000 over the course of 5 years, you might want to sell it before the trend reverses itself and goes down or plateaus indefinitely. If you do, you’ll make a $30,000. But what if prices continue climbing to $230,000 over the next 5 years? You’ll have missed out on $50,000.
Fortunately, real estate prices don’t swing as wildly as stocks and commodities do (with only a handful of exceptions), so you won’t have to worry about too big a loss unless you make a serious error.
Long-Term Trends
It’s also important to keep in mind that like with all investments, the most stable path to achieving a return is patience and consistency. Buying or selling a house in a panic because you think the market’s about to change is an irresponsible (and often times ill-advised) decision. Buying or selling a house because you’re ready to do so, and you’ve found a fair offer is a good and logically sound decision. Practicing patience and rational decision making is going to pay off more in the long term.
The bottom line is that it is possible to time the local real estate market in your neighborhood, or in the neighborhood you want to move to, but it’s going to require a lot of time, research, effort, and expertise to make it work. You can use the numbers to your advantage either way, and learn from the experience of looking at other homes, but don’t try to flip a house as a get-rich-quick scheme if your ultimate goal is maximizing your profitability.
Everyone needs an expert on their side. If you’re interested in seeing how Green Residential can help you find the perfect home in the Houston, Texas area, make sure to contact us today!
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