Finding the Bottom of the Current Real Estate Market

When considering real estate, historical lessons should be strongly analyzed and followed. In the current market, we are coming out of a boom period in which prices are inflated beyond the reasonable, objective value of most homes. As the boom cools off, we are seeing prices begin to drop. Ironically, this situation occurred roughly 20 years ago and provides us with evidence of the buying opportunities to come.

In the late 1980s, the real estate market became saturated. When I say saturated, I means flooded. Both homes and commercial properties sat on markets for months and even years. Prices dropped like a stone in a lake. In one case, a real estate investor friend of mine picked up a home in Los Angeles that had dropped from a price of $650,000 to $380,000. When prices rebounded through the 90s and went nuts in the early part of this decade, he saw the value of the property more than quadruple what he paid. Many suspect such a situation is about to repeat.

If you are considering buying a home, you might want to start analyzing the market. More than likely, you will find that property values are dropping in your area. If you are patient, you can wait till prices bottom out and pick up incredible deals. When prices rebound in the next few years, you should see tremendous gains on your investment and really clean up. So, how do you do it?

One way to watch a market is to identify homes you are interested in that fall in different price categories. Try to identify 20 or so homes. Create a log of the homes, when they came on the market and their initial selling price. Each week, keep track of the status of the homes. Did any sell? Did any drop their asking price? The idea is to look for trends that include it taking longer to sell and asking prices going down. If you see these results, sit and wait. Just watch the prices fall. Eventually, you will see the prices flatten out. You have found the bottom of the market. It is now time to buy.

Timing a market as above can be a bit or hit and miss situation. There is always a chance your local market may not deflate even though national trends suggest as much. If you do not see a definitive downward trend in prices, you may want to skip this entire strategy and simply buy now. Even if you buy at the top of the market, you should see price recovery over the next five years.