Monday, October 27, 2008

Waiting for the Bottom and Other Stupid Ideas...A True Story

I hear over and over again from agents, clients and customers that they are "waiting for the bottom" of the real estate market before they decide on one of their largest long term financial decisions, the purchase of a home. Here is a true story of "waiting for the bottom"...

I have been working with clients for many years now trying to find the "right" property. They know exactly what they want and that is a very good thing (Clients Who Know What They Want and Why I Love Them is a blog for another day...I digress). This spring we started honing in on a couple properties that met every criteria we have been searching for. They had been saving money at a feverish pace and had built a large nest egg close to $200k. However, a little birdy told them that the real estate market had not hit bottom yet and it was not a good time to buy. "Wait till the market hits rock bottom and you can get a real deal". They heard this mantra over and over again at church, work, in print, on line, and on TV. All of these "experts" must be right, they thought to themselves.

So they put their $200k of hard earned money into a "sure thing"...the stock market. The "experts" at church, work, in print, on line, and on TV said nothing negative about the stock market because their field of expertise only extended to real estate. It was settled, "Hold off on purchasing a home that we would live in for 10-15 years to "wait for the bottom" and put all of our hard earned cash in the stock market to gain value."

I got a call last night. The $200k is now $110k. The first words out of his mouth was, "if I had put that money in a house, I would have AT LEAST had SOMETHING to show for it." They have outgrown their 3 bedroom house, they no longer care about "the bottom", but they can no longer qualify for their next home.

They thought of their long term asset (real estate) like a short term asset. Waiting for the bottom is a great strategy when you are trying to buy something to sell tomorrow. With a long term investment, purchasing at the bottom isn't as critical as picking the time to sell at the top.
So all the experts who cautioned my clients on "waiting for the bottom" but did not give such counseling when it came to the stock market...Shame on you.