Want to look stupid, be humbled, and get proven wrong, all with one prediction?
Call a bottom in the housing market.
Nothing has humbled more people than trying to figure out when our great housing skid has come to an end: would-be homebuyers, beleagured real estate agents, those perennial optimists at the National Association of Realtors.
These would-be Nostradami roll out statistic after statistic in a vain attempt to identify housing’s floor. But the floor keeps sinking.
Unfortunately, the folks who rely on statistics are missing the point. This is an unprecedented time in our history, so we have no statistical cues that tell us we’ve hit bottom (except for real housing prices, but come on, that’s too obvious, eh?)
Statistics won’t tell you the bottom – psychology will. If you’re looking to buy a home — whether as an investment or an abode — look for these subtle signs that prices might have reached their nadir.
1. No More Predictions
After a while, people will grow tired of housing-bottom predictions — both of hearing them, and making them.
At a certain point, people will grow weary as prices keep dropping. They will even get depressed. Not only can’t they see a bottom, they can’t imagine a bottom ever getting here.
And that’s when we’ll have a bottom. Just like stocks, the market likes to beat you to a pulp, until you can no longer see light at the end of the tunnel before turning around.
Watch for dread and despair that housing will even stop dropping. Unfortunately, we’re not there yet.
2. Rent Equivalency
In the bubble days, most of us bought the muttered mantras about real estate: ‘Buy as much home as you can afford,’ ‘house prices always rise,’ ‘why throw your money away on rent?’ etc.
All proven to be really, really wrong. Painfully, painfully wrong.
People now understand that while their house might be a good way to build equity, it can be a pretty lousy investment in the short term. Maybe even the longerish term.
Affordability is now the key metric: If the costs of homeownership are less than renting, and you can afford those costs and you plan to stay put for 10 years or so, owning a home is probably for you.
Remember those cocktail parties where people used to brag about the value of their homes rising 25% a year? Those same parties where they’re now drinking Coors Lite instead of Dom Perignon?
When you hear more conversations about what people would pay in rent vs. the costs of owning their home (or of buying a home), that’s another psychological sign that we’re nearing a bottom.
3. You Want Out!
Maybe you’re still ‘up’ on your home investment and you want to protect any equity you have. Maybe you’re underwater and don’t want to sink further.
When we get to the point where people really start panicking about the values of their homes, where they’re considering moving because the thought of their bad investment outweighs the love of their shrubbery or backyard patio, that’s another sign that we might be just about there.
Just like people usually sell their stocks at the lows and buy the highs, look for similar sentiment in others (and in yourself) to help you tell when we’ve might have hit rock bottom.
You might just be your own best contrary indicator.
Tim Johnson — Relocation.com