Because the real estate market moves in a cycle, you’d think timing it would be easy. After all, if investors could predict what the market will do, we’d be able to time our moves accordingly! While that’s a wonderful thought, it’s the daydream of an inexperienced investor.
Timing the housing market, like timing any financial market, is a challenging and risky endeavor. While some investors might have success in certain instances, it's difficult to consistently predict the movements of the housing market accurately.
8 Reasons Timing the Housing Market Is Challenging
1. The market is guided by complex factors
The housing market is influenced by a multitude of interconnected and intersecting factors, including economic indicators, interest rates, population growth, employment rates, consumer confidence, government policies, and more. Trying to predict how these factors will interact and impact the market accurately is a complex task. While we can look at these factors and gauge the relative health of a market, we can’t always anticipate the ripple effect of changes.
2. Local markets present significant variables
Housing markets can vary significantly from one region to another, even within the same country. Even within the same state! What might be true for one city or neighborhood may not hold true for another. Because of this, investors can’t rely on a one-size-fits-all investment strategy. Individual markets demand individual consideration.
3. Data tends to lag behind
Real estate markets can sometimes be less efficient than financial markets. Information may not be readily available or accurate, making it difficult to make informed decisions based on data. Even if we can aggregate much of the data, it’s usually behind by a few months or even a whole quarter! Predicting the market successfully means having to be right before the data is there to back up your predictions. Few investors are willing to take that kind of risk, and for good reason!
4. Real estate trends emerge long-term
Trends in real estate often unfold over the long term, making short-term predictions more difficult. While there might be cyclical patterns, they can be influenced by unexpected events and external shocks. The past definitely can inform our predictions, but nothing is guaranteed. In the moment, knowing what’s coming is nigh impossible.
5. People put emotions into real estate
Unlike stocks or commodities, real estate transactions are often influenced by emotional factors. Buyers and sellers make decisions based on personal circumstances, lifestyle choices, and sentiment, which can be hard to predict. Humans aren’t always rational creatures. They very well might defy expectations based on reasonable, logical data analysis. The emotional factor always adds a layer of unpredictability to the market!
6. Real estate isn't as liquid as other assets
There are many benefits to owning real estate, but liquidity isn’t one of them. Real estate transactions can take longer to execute compared to other investments, like stocks. This lack of liquidity makes it tougher to react to sudden market changes, especially if those changes demand a quick cash infusion.
7. Regulatory changes can be surprising
Government policies related to housing, lending, and taxation can significantly impact the housing market. Changes in regulations or policies can be difficult to predict and may lead to unexpected market shifts. Case in point, the interest rate increases over the past few years. We might have seen the hikes coming, but the market’s unresponsiveness to the desired result wasn’t something we could totally anticipate.
8. No one can predict disaster
Unforeseen events like natural disasters, economic recessions, or global pandemics can have profound effects on housing markets. These events are impossible to predict; and even so, we can’t map out the totality of their effect or how long the aftermath will last.
The Good News...
You don't need to predict the market to succeed!
By now, you might be feeling uncomfortable with just how little you can control and predict about the real estate market. That’s understandable! But we’re not without hope. Investors avoid trouble when they focus on long-term investing. When you set your mind to holding your properties for several years at minimum, you’re less prone to the impact of in-the-moment market fluctuations.
You can afford to wait out poor conditions. Real estate almost always trends upward, with very few and very extreme exceptions like the Great Recession.
Investors need to make the most of their time. Instead of worrying about what the market will do, take hold of present opportunities based on reliable long-term trends. Get in this business for the long haul – you’ll be rewarded for your patience!
With over twenty years under our belt, we know a thing or two about how to guide real estate investors through market conditions.
