Minyan Mailbag: Can You Time the Housing Market?
Home is where the heart is... literally.
Editor's Note: Minyanville is a community of people who share an interest in fiscal literacy. As perspective is an important aspect of our daily routine, we share this exchange with hopes that it adds balance to your process.
Just a quick question...without having even read the article your wife sent.
So...I'm assuming you are renting and that you and your wife want to buy a house and it seems you're timing the market. So... let's say the market cools, stabilizes, or whatever, and mortgage rates tick-up and your looking and waiting. At what point does a couple like yourself.. maybe with kids.. maybe not... say, "I like this house and we can afford it and we can lock in X-rate for Y-years and this will be a nice place to raise a family for the next 30 years" ?
I will certainly offer that the professors are smarter than me, but the first thing I learned was that you can't time any market.
House-warming gift to be sent at a later date....
Most of the points you make in your question are true in a broad sense. What makes them untrue for my wife and I are the underlying variables which naturally cannot be known without a deeper profile and exploration of our goals and timeframe. This illustrates the impossibility of giving useful financial advice to someone whom we have never met and never even had a conversation about risk tolerance and financial goals with. That is foremost among the reasons why Minyanville is not a financial advice Web site.
The key part of your question is this: "I like this house and we can afford it and we can lock in X-rate for Y-years and this will be a nice place to raise a family for the next 30 years." That is not a speculative framework. It's a framework of functionality, utility.
Absent of speculative goals, buying a home is no different than buying any other tangible asset. So why do we view it so differently? I suppose it must be the size of the asset (for many of us, especially today, a home is the single largest purchase we will make in our lifetimes) and the emotional strings that go with it. The emotions, especially, confuse the issue. Home ownership is an important aspect of American life. Indeed, it defines many people and serves as a type of signifier; who they are, their status and class level, their peer relationships.
There are many wise people, far more intelligent than I am, who have said that you cannot time the market. In a very general sense I agree with them. But it's a bit like declaring: "The overall trend of common stocks since the 1800s is higher." That is a true statement, but a useless one since it fails to acknowledge any market or stock specific risk whatsoever. In my view, evaluating market risk is different than timing the market. The indicators I use for stocks are contextual risk indicators. They help me evaluate market risk conditions. I do attempt to time the market in a sense, but I employ a style that acknowledges that I may be incorrect in the precise timing and which relies less on timing than overall context.
Most people buy homes because they've been told that owning your own home makes good financial sense. But as with nearly all old saws of conventional wisdom, things are not so cut and dry as all of that. If nothing else, our goal at Minyanville is to help people consider alternative viewpoints and make better educated decisions. The reality is that most people never consider for more than one moment anything other than how much house they can afford to buy at the moment they are looking.
Fil Zucchi not long ago discussed in a rational manner the myths behind the conventional wisdom of home ownership. His article sums up quite well the decision-making process my wife and I have used to determine whether we should rent or buy in New York City and the surrounding area.
And finally, I have to take exception to your offering that "the professors are smarter than me." At least in my case, I can say that every day I learn far more from folks like you and other Minyans than I "teach" through Minyanville.
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