Trying to time the bottom

Filed in archive mortgage tips on August 17, 2009

Did you see the housing crash coming? There were certainly enough warning signs. Maybe the better question is this: Did you see the housing crash coming and did you do something about it?

In other words, in early 2006 when housing prices were reaching their peak, did you sell your home for a big profit and then rent an apartment, where you could wait out the housing crash?

Not a lot of people did this. It's not easy to sell a house, even if you are looking at big profits. And for many homeowners — those who planned on living in their homes for a long time — there was no reason to sell to avoid the housing crash.

Bu the Los Angeles Times ran a good story recently on people who timed the housing crash perfectly and did sell their homes right before they would have started losing their value. The Times story highlights the case of homeowners who sold their residence in Newport Beach, Calif., in 2006 for 20 percent more than what they paid for it. They then rented an apartment that is one-fifth the size of their home.

The story doesn't end there, though. This same couple is now trying to decide when the best time will be to purchase another home. In other words, they're wondering if residential real estate has already hit bottom. Will housing prices get even cheaper, or is now the time to buy?

Doing this, of course, can make you crazy. It's tough to time the residential real estate market perfectly. No one knows for sure if the modest housing price gains we've seen recently across the country will hold. After all, we've just gone through the spring and most of the summer. Housing sales activity is usually stronger in these warmer months. As the temperatures cool, we may see both housing sales and prices drop again.

If you're hanging on the sidelines trying to determine the best time to buy a home, spare yourself some agony: The best, safest way to make money by buying a home is to commit to purchasing a residence in which you'll be comfortable spending at least seven years. That way, when it's time to sell, the odds are terrific that your home will have appreciated in value enough for you to make a nice profit.

Don't try to buy a home in the hopes of selling it in just two or three years for big money. That kind of housing market, it seems, is long gone.