Don't worry about missing the bottom in houses

Philip Brewer — Thu, 26 Mar 2009 15:39:19 +0000

I've recently heard from several people who want to buy a house and are thinking that now may be the time. In particular, they're worried that waiting might cause them to "miss the bottom" and lose the chance to get a great house cheap. In housing (unlike, for example, the stock market) you don't need to worry about that.

It's a real issue in the stock market. One reason that people recommend keeping your money in the market through downturns is that, when the market does turn up, it tends to turn up sharply. More than one study has shown that having your money out of the market for just a few days a year--if they're the few days with the biggest gains--can cut your total return by half or more.

This is not, however, true for houses. There is absolutely no need to try to catch the bottom in the market for houses, because of all those individual sellers out there.

Take a house that has been sitting on the market for years, with the owners cutting their asking price repeatedly--from what they hoped to make to what their realtor said they could make to just enough to break even to just enough to cover the mortgage to just enough that the sales price plus all their savings could cover the mortgage--but the house still hasn't sold. When you make an offer on this house, the owner is going to take it unless the bank won't let him. He's going to take it even if the market has "hit bottom;" even if his neighbors' houses have started selling; even if there are rumors that some buyers aren't low-balling every offer. He's been waiting too long to risk letting a firm offer slip through his fingers.

Of course, for any particular house you can miss your chance to buy. Once someone else makes an offer for that house you won't be able to get it with a low-ball offer. But there will still be all those other houses out there that the owners have been trying to sell for years.

Don't worry about catching the bottom. Even a year or two after the bottom there will still be houses that haven't sold, and they'll still be available for rock-bottom prices. It's completely different from the stock market.

Written by Philip Brewer and published on Wise Bread. Read more articles from Wise Bread.