Real estate markets are extremely cyclical, with pricing and demand greatly influenced by interest rates and economic conditions. Flexible buyers and sellers can often do very well by timing their entry into the market.
Choose a Weak or Strong Market?
Most people who buy a home also have one to sell. Thus, except for first-time buyers, it may be difficult to determine the most advantageous time to enter the market. It's important to consider all aspects of the transaction - the homes being bought and sold, interest rates, time pressure, etc. - to determine what is best for you.
When is a Weak Market Best?
Generally, it is advisable to act during a weaker market when moving up - purchasing a more expensive home - since a bargain on an expensive new home will offset losses on the old one.
When is a Strong Market Best?
If you are downsizing - moving to a smaller home - you may want to act during a strong market to maximize gains on your larger, current home. Retirees and empty nesters are the primary members of this group. Since a home is a major asset, choosing the right time to sell and then buy a smaller property can have a major impact on retirement savings.
Signs of a Weak Market
A weak market is characterized by large numbers of homes on the market and stable or declining prices. During such times homes tend to sit on the market for fairly long periods, and sellers may have difficulty finding buyers - so this is the time to find a real bargain.
Signs of a Strong Market
A strong market is characterized by appreciating prices, tight inventories, and short selling times. Buyers may have a difficult time finding a suitable property in their price range.
Signs of an Overheated Market
Overheated markets are characterized by rapidly increasing prices, extremely low levels of available inventory, and bidding wars for attractive properties. While obviously an ideal time to sell a home, buyers should exercise extreme caution when purchasing during an overheated market - prices almost always contract sharply when the economy falters.
Popular perceptions and pricing often lag behind the actual turn of a market. For example, prices are often slow to react to the onset of adverse economic conditions, as sellers and agents are reluctant to accept the change until properties have languished on the market long enough to force price reductions.
Keep Your Head
Don't get overly discouraged if market conditions seem stacked against you. Conditions are rarely as extreme as they are often made to seem by the media. Homes are available during booms, and buyers are in the market during busts, so make sure your decisions are based on reason and judgment, not on fear or excitement.