Let's Turn the Page
We in the real estate industry are eager to begin a new year, in large part to end the pain of the last one. But, as with many things where consumer confidence and opinion plays a large role, the effect of a new year beginning has the potential to bring great improvement to the market, at least the residential market.
As by now almost everyone knows, the government has proposed and/or legislated many incentives to improve real estate sales. There are interest-free loans, bailout provisions, and various other stimuli, in addition to some big moves to reduce mortgage rates. In many ways, especially when combined with the uncertainty of investing in the stock market, this is the perfect time to buy real estate. So why are so many sitting on the sidelines? Well, it’s not unlike a junior high school dance. No one wants to be the only one out on the floor, so everyone sits around watching for signs of activity. When movement begins, it often ramps up quickly as people rush to take advantage of an early position. In the real estate market, this is the equivalent of having buyers wait to see whether prices will rise. Once they do, they may go up rapidly.
Obviously, over the long haul it makes little difference whether one buys 5 per cent above the bottom of market on the way down or on the way up; either way, the price is the same and it isn’t the absolute lowest. But, just as pundits say that market timers rarely succeed in picking the bottom stock price, they rarely succeed in hitting the lowest home prices, except by luck. And, since real estate is often held over long periods of time, it really doesn’t make all that much difference exactly when one buys. In fact, the interest rate one pays makes a much greater difference over the life of the loan than the purchase price of the property does.
So why is everyone sitting at the side of the dance floor? They’re waiting for someone else to move first. That’s why a new year can help so much—it gives people a reason to behave differently. It also reminds them that the clock is ticking on some of the incentives. And that time is fleeting in other ways; at some point, we all just want to stop worrying, and get on with our lives. For me, as for many of you, that time can’t come too soon. Happy New Year!