One of the topics we touched on during yesterday’s Rain City Radio conversation was when and how to catch the bottom of falling house prices.
I’m not personally obsessed with catching the very bottom, but I also am not interested in buying something less than ideal that I can barely afford based solely on a false notion that prices will keep rising, only to have them drop another 10-20%. I outlined one possible strategy in this post, where one would wait for three years or 6 consecutive months of price increases, whichever comes first.
Reader Sniglet pointed out a possible flaw with this strategy in yesterday’s comments:
Personally, I would suggest waiting for more than 6 months of consecutive price increases before buying, as Tim suggested (if you are trying to time the market, and buy at the bottom). If you look at Japan’s price decline in the ’90s there were some periods where prices seemed to have stopped dropping for about a year, but yet the decline continued anyway.
One thing that is consistent at all housing downturns is that it takes years for prices to really pick up significantly. My advice would be to wait until it looks as if prices haven’t declined anymore for a couple years. There is certainly no rush to jump in once a market has hit bottom, so patience is the best policy.
There certainly exists the possibility that there will be “false bottoms” that last longer than six months. How long you set the horizon is really a matter of your personal assessment of the risk.
What it really comes down to for me is this: “can I afford a decent house that I will be happy with long-term at today’s price?” If the answer to that is yes and I am comfortable paying today’s price knowing that I could possibly get a better deal by waiting, then I’ll probably buy anyway—bottom or not. For my family, I expect that time will probably come around 2010, even if prices are still declining.
So what is your strategy? Are you waiting for a specific price point, or are you more interested the overall direction of prices? Or perhaps something else entirely? Let’s hear your suggestions.