Timing the Market Doesn't Work for Stocks. Here's Why It May Not Work for Real Estate, Either
KEY POINTS
- Some investors try to buy stocks at low prices but lose money in the process.
- You may be inclined to take a similar approach to buying a home, but it may not be your best bet.
Even pro stock investors often fail to buy low and sell high.
Years ago, I had my eye on a specific tech stock I really wanted to add to my portfolio. Its price had been dropping, but I wasn't ready to pounce. The reason? I was intent on adding it to my brokerage account only once its price had truly bottomed out.
You can probably guess how things turned out. I hesitated on buying that stock, and its price jumped back up -- and I missed out on those gains.
See, what I tried to do was time the market. And I failed miserably.
And it's no surprise that I failed, because there are countless studies out there proving that timing the market just isn't a good investment strategy. A better bet is simply to buy quality stocks regularly.
Just as investors try to time the stock market, homebuyers often try to buy a house when prices are at their very lowest. But nobody can say for sure which direction home prices will go, so this can be a dangerous strategy.
Buying at a low may not work in real estate
A home is a huge investment, so it's easy to see why you'd want to purchase a home when prices and/or mortgage rates are at multiyear lows. But it's also easy to see why that strategy might backfire on you.
Let's say you're financially ready to buy a home right now. You have funds saved for a down payment, and you're confident you can qualify for a mortgage. You might say to yourself, "Well, let me wait a few months for home prices and mortgage rates to come down."
But what if they don't? As of December, the median home sale price nationwide was $366,900, according to the National Association of Realtors. You might choose to wait until March or April to buy a home, thinking that prices will have dropped by $10,000 or $15,000.
But what if they don't? What if, a few months from now, home prices manage to rise rather than fall? Suddenly, you could get stuck paying more for a home.
Or what if you find the perfect home now but hold off on making an offer because you're hoping to get a better mortgage rate? If you wait too long, you might miss out on the chance to buy the home. Not only that, but mortgage rates could very well increase in the near future.
Buy when you're ready
If you're in a position where you can afford to purchase a home, and that's a step you want to take, then you shouldn't necessarily let market conditions dictate your decision.
If you make it your goal to buy a home only when prices or mortgage rates are at their lowest, you might miss out on great opportunities. So as you look for a home, don't ask yourself, "Am I getting the best possible deal?"
Instead, ask yourself, "Is this a home I love and can afford?" If the answer is yes, then you may not want to hesitate.
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