First off, timing anything in the financial arena can be a bit of a misnomer. History has shown that real estate is a good investment over time regardless of when you buy. Real estate also has the secondary benefit of being something you can actually live in even if the value drops, a dramatic difference from stocks which make very leaky homes. While stocks can be traded on a daily or hourly basis, the nature of homes is such that you pretty much have to sit on your investment for some time regardless of how the market is going. That being said, the market always heats up again. The time it takes for it to do so is time you can build equity in your property by paying down the mortgage.
If the market is cooling down now, does this present you with the golden opportunity to purchase properties at a discount now? Maybe or maybe not. Every location in the country is different. While formerly hot markets like San Diego are definitely beginning to stagnate, other local markets like Jacksonville are actually picking up. In practical terms, the first thing you need to do is evaluate what is happening in your local market.
If your local market is cooling down like much of the nation, you are definitely coming into a better position as a buyer. The reason primarily has to do with the timing of previous buyers during the hot phase of the real estate market. Those that got in during the beginning of run up, say five years ago, are sitting pretty on big appreciation gains and will be able to handle any temporary dip in prices. These people are not going to be interested in dumping their properties, but another group certainly is going to.
Imagine purchasing a property in March of 2006. You would have picked up the property at literally the highest point in the market. As real estate cools down, so does the value of your property. Demand for homes is dropping, which pushes prices down. Individuals that bought during the last year of the seller's market are facing going upside down on the mortgages. Unfortunately, many of them have no realistic way of getting out of the mess. This means foreclosures by banks. Yes, it is going to be one of those periods again.
If you are considering buying, it may be worth waiting till the end of 2006 or early 2007 to see how the market is doing. My suspicion is prices will drop significantly as more and more properties come on the market.
