Sacramento: Is Now the Time to Buy?

Now is always a good time to buy. Or so goes sales-speak. But perhaps there is a reason for it beyond just the job of sales? (Yes, it's a job... like any other!) But today I want to discuss with you why I say that about real estate in general and real estate in Sacramento in particular.

Time, not Timing

As you can probably tell, I'm not a big fan of timing the market - real estate or otherwise. True, some people can do it pretty well and profit from it, but I believe most people use market timing retrospectively to justify their own fears or expectations. In other words, when the market goes down, the fearful ones feel justified; when it house prices appreciate, the optimistic ones feel victorious. With all this tongue thrusting at one another, the reality of historical price appreciation, the inherent value in real estate and population growth gets ignored.

As someone pretty smart once said, "It's about time in the market, not about timing the market." I wish I could remember who said it. Real estate typically has cycles of about 7 - 10 years, with some pretty wide swings in between. One cannot look at the last two years or the two years that came before it as typical. How could you sleep at night if you did?

Wealth is Created Month by Month

I think there is a reason successful investors are older, quieter people. They are less prone to get carried away by every tick - up or down - of any index. They have learned to handle the two worst enemies of any successful venture: fear and greed. Unfortunately these two impostors run the market and the minds of most other people. So investing takes equal amounts of trust, research and guts. And of course, patience, something we 30 somethings need large heapings of, I guess.

Okay, I'll confess. The recent downturn hasn't been fun. It isn't easy to see one's net worth fall. My rentals have lost value. My own house has depreciated. The real estate business has suffered because the mood in the market is that of fear. And that leads to the overwhelming question: Did we buy our houses at the wrong time? And my answer is a resounding NO!

Before you think I'm insane, consider the fact that we used the equity from one house to buy another. Consider also that the tenants are paying most of the mortgages for us, thus reducing our liability every month. We get tax incentives. And we live in the home we always wanted. In today's market, we couldn't have bought this home, because there would have been no equity in the others. If you think about it, all things considered, we're in a pretty good place right now. And if you're a homeowner and can afford to keep it, unless you're retiring tomorrow, you're probably also not in as bad a shape as some might have you believe.

So is Now the Time to Buy?

If you are a first time buyer, the best time for you to buy has passed. It was last year. Yes, I know - home prices have fallen since then. But there are no zero down loans unless you are buying a home in a rural area. I can't tell you how many first time home buyers have been given this sad news. By the time zero down loans come back, the market will be far higher than today. So much for timing the market.

And what about mortgage rates? Just last week, they jumped higher than anyone could predict. For some home buyers, that was the end of their real estate purchase dream. In such a volatile time, mortgage rates can go anywhere and if you haven't locked your rate, a home purchase might need to get put off for a long time.

And then there are those that would like to buy a home with the equity in their current house. They would either like to move into a bigger home and hold the first as an investment rental or buy a rental. Lenders now require at least 20% down for an investment property, with 25% down getting better interest rates. If you didn't refinance last year, you can't buy that home now, seeing that prices have fallen farther. If you still can, do it, but know that mortgages have more fees attached today and - surprise, surprise - mortgage rates are higher.

So What's the Answer?

Simply this: No one can tell you when the right time is. Not the doomsdayers, not the news, not even me. When you look at your family budget, you'll know. Real estate is still one of the most solid investments you can make into your future, but it is not to be taken lightly. If you are one of those that sway with every breeze, it is perhaps best you stay away. No shame in that - you should always know how much risk you can handle. You don't want to be another Casey Serin.