From miat42 , Wnexuecity
Always remember this:
When everybody is talking about buying, even your children's day care givers are talking about buying in fear of being left behind, or your dentist is admiring about your earlier move in RE investment, this is the time to plan your exit to the RE market. When was that time? late 2005 or early 2006.
When everybody is uncertain about RE investment, half saying "the worst is over..., the market will soon start recover by spring...", another half is saying the market is doomed. This is the time for no action. Let the water be more clear. Let those optimistic talks go away... What time is this? Now.
When everybody is certain that RE investment is a profit less endeavor. Nobody is willing to discuss real estate, if you are the only lonely optimistic person, you fear being ridiculed if bringing up that topic. DOM is 1 year or longer. All your new real agent friends have found another employment. This is the best time to actively plan to deploy your cash. Actively start looking, aggressively negotiate down the price to desparate sellers. During this time the market may still drift for couple of more years, but it's definitely bottomed.
Basically, contrarian movement is the most profitable strategy to time the market.
The graph can be found here:
http://www.bbschinese.com/bbs/showthread.php?s=&threadid=67366
I am not a pessimistic man, I have high investments in RE. However, after seeing this graph, I can't shake myself away the potential of a new low point coming up in the mid term, probably not in the short term. I think that for the short term, the RI may even recover slightly.
Having said that, I am extremely bullish for the long term. My only focus at this moment is to survive the coming low point. DC area also provided investors strong shield against national crisis. Even if nationally a low point is reached, I don't expect DC area to fare too ugly.
BTW, from the graph, the first low point was reached in 1982, then quickly recovered. From 82 to 89, price in DC area made a double. The next low point was reached in 1991 (the picture is too small to see clearly). You are right, from historical pattern, we are over-due for a new low point.
From investment point of view, the greatest profit would be gained from buying at the RI low point, then hold for the next 10 years. However, it appears that this is not an absolute science. Suppose one investor bought a house in 1991, he wouldn't have made much after 10 years of holding if he sold it in 2001. He would have missed the fastest rise happened from 2001 to 2005. Therefore, timing is very hard. Still, the best buy decision shall be made when nobody is buying, e.g., in 1982 or 1991, a contrarian move. Then, hold as long as possible until RI index is peaking out...
It's relatively easy to identify the RE market bottom based on social psychology and market dynamics. However, even if we were able to identify the year 1991 as the low point. Making purchase in that year may end up demanding a very long hold cycle. I am not sure about Bay area or NYC area, in DC area, buying in 1991 could offer you a best price point. However, from the ensuing hold cycle till 2005, it's about 14 years. Tying up precious money in holding such a long cycle is very unproductive. I have been thinking about the strategy of how to avoid such a pit. A side note is, most cycle is not as long as 1991 to 2005. That last cycle in DC area is out of ordinary. But it could happen again in the future, especially in a less volatile region as DC area. How to avoid tying up cash for such long period?
Here is my thinking:
Don't immediately deploy cash when the bottom point is identified. Actively monitor the local RE association data. Do not click the buy-button until the association's data is showing consistent Quarter over Quarter rise in price. Closely monitor the buying community. It's not too late to enter the market when you first hear of "a waiting list is forming" from certain builders' sales office.
It's not necessary to be a hero in breaking the ice of a long-frozen market, let a few heros do that job, proving the thawing of the market to you, then you follow them.
If we apply that strategy from 1991 to 1999, that may allow us to delay the move by as late as 1997, when the first thawing has accumulated enough momentum to show us some proofs.
Of course, this strategy is NO SCIENCE at all. We don't need to be exact on this. But by adopting some right psychology ourselves, we can better align our energy, avoiding costly mistakes.
Be a slave to the market. Never try to be the master of the market.
