When giant real estate moguls such as New York's Donald Trump, Chicago's Sam Zell, and Santa Barbara's Tom Barrack all collectively agree that it is impossible to time the bottom, it is safe to assume that accurately identifying the perfect time to buy is a very difficult thing to do.
Some of the additional items that should be considered when deciding to make a purchase are interest rates, quality and condition of the product, location, and the amount of other available inventory. Other than price, perhaps the next most important factor when purchasing a home is the interest rate that a Buyer is charged. The lower the interest rate a Buyer secures, the more purchasing power his/her money will have. In addition, securing a lower interest rate can protect a homeowner from value declines in the long run.
For example, Buyer Bob is making a $4,000,000 purchase on his Rancho Santa Fe dream home. The terms he secures on the 80% loan-to-purchase lending package is a 5% simple interest loan with a thirty-year fixed term. His loan amount, therefore, would be $3,200,000 and his monthly payment would be $16,000. If the rate, instead, was 6%, his new payment would be $19,200; this is an increase of $3200/month, which is 20% higher. This example demonstrates how important it is to weigh in interest rates along with the price. If the real estate market has now bottomed out, as some market experts agree, then it would be wise for a Buyer to lock in the lower interest rates now versus waiting for the market to decline. The probability that the real estate market will rebound sooner is higher than the probability that the interest rates will remain low for an extended period of time. Any further declines that the market may realize will eventually be made up by lower interest rates and long-term appreciation. It is important to consider this factor now more than ever before since interest rates are historically low and economists are predicting that they will certainly rise.
Other factors to consider when "timing" a real estate purchase are quality, location, and available inventory. Whereas an Investor/Buyer might focus more on price, a Buyer searching for his own personal primary or secondary residence will rather be focused on the quality and location of the home. After all, when buying for personal use, a Buyer will actually be living in the home. For this reason, it should be right for his/her family for long-term use. If children are a factor, the school district should be considered. Is the convenience of commuting to work important? Will grandparents move into the home, making a single-story home ideal? In these instances, it would be better to find a home in the right location or with the right floor plan than to pay a lower price for a home that might be a good deal, but not a good fit.
It is also important to keep in mind the amount of available inventory when trying to "time" a real estate purchase. If a Buyer finds the perfect home when prices are low and interest rates are low, perhaps it is better to make the purchase now versus waiting indefinitely for a better deal to become available. If the time frame is extended for new inventory to become available, the Buyer runs the risk of not only locking in a much higher interest rate but also of not finding a suitable home.
Timing the real estate market is a bit like locating the elusive great white elephant, the unicorn, or other mystical creatures. The point is that if you are a Buyer on the sidelines waiting for the perfect moment you may never find it. You may miss your chance and be worse off than if you had taken a calculated risk when the time was ripe. I would encourage Buyers to seriously consider the old adage: Don't wait to buy real estate, buy real estate and wait. Indeed, the current low prices combined with the historically low lending interest rates may be just the indicators you have been seeking to decide that now is the time to move forward and make your valued purchase.