You may have a thorough understanding of all the influences affecting real estate values in your community. Even so, the timing of any decision will have a lot to do with profit and loss. In all forms of investing, timing of buy and sell decisions is of critical importance. Depending on the stage of the cycle at the moment of that decision, the move could be judged on timing rather than on the analysis of cyclical information. Choosing the best moment is difficult, but not entirely impossible. The choice is probably easier in real estate than in the stock market, due to the differences between the two. Real estate cycles tend to be more easily identified in a longer-term perspective. Stock market trends, however, can change from moment to moment, and opportunities come and go quickly with those rapid changes. You are wise to study real estate cycles and to be aware of the market in your community. However, the cycle itself is not the whole story. You need to be aware of six additional rules of thumb in real estate.

1. Real estate is a long-term proposition. It is not realistic to expect that you can make a killing in real estate in a very short period of time. While some people have profited from fast speculation, the opportunities are much clearer in hindsight. In fact, the most successful speculations are made at a moment when virtually everyone else is doing the opposite. You buy when everyone else is selling, for example. Going into real estate with the goal of getting rich quick is a risky idea, and the odds are working against you in that case.

2. Real estate markets are strictly regional. You have probably read in national magazines or wire service stories at various times about "the plight of real estate." You might also be aware that a lagging real estate market de-scribed in such stories does not necessarily describe what's going on in your town. That is because real estate is always subject to regional factors, and rarely is local real estate drastically affected by national trends. For example, Northwest prices move for Northwest regional causes, and not because of population and employment trends in the East. Employment is a good example. Changes in the job market directly affect real estate supply and demand, and yet employment varies greatly from one place to another, often in places separated by only a few miles. Many people automatically assume that real estate conditions are the same everywhere, but this is a mistake. The assumption applies stock market thinking to real estate. However, while the stock market is national, real estate is strictly regional, so the rules are different. Never make up your mind about what's going on in your area based on a story written by someone living somewhere else. Depend on only regional news and statistics, and talk to real estate agents and bankers in your area before deciding the condition of the real estate market.

3. The big run-up is never really over. Whenever real estate prices soar in a relatively short period of time (five years or less), a period of pessimism follows. We are told that we have missed the chance if we did not buy real estate several years ago and. even worse, the opportunity will never come again. None of that is true. If. in fact, a recent run-up has peaked, this is only the end of one cycle; and the end of a cycle is also the beginning of the next cycle. By waiting for the right signals, you will still be able to time your investment decisions to approximate the bottom and top points. Even if you did miss the "big" run-up of the recent past, you still have time to get in at the bottom of the next cycle.

Why do cycles repeat? In spite of the recurring predictions in the financial press that yesterday's opportunities are gone forever, there remains a constant and growing demand for real estate. The initial demand is for housing due to a growing population, and housing demands spur related demands in manufacturing, industrial, and other sectors. But can we depend on such demands increasing into the future? Yes. The population continues to grow. Even though the baby boomer generation may stop buying homes, their children (and grandchildren) will continue the demand. There is no reason to expect the demand for housing to decline in the future. Much of the growth estimated for our future is due to two factors. First is the trend in immigration. Second is what is called the "echo-boom" generation, people born from the Sate 1960s lo the late 1970s and moving into house-buying age rang. The home-buying block of the population will grow by 1.2 million over the next 15 years. Demand by way of population growth—whether caused by net increases in birthrates, immigration, decreased mortality, or a combination of these factors are important reasons that real estate represents a sound investment opportunity for years to come ahead.

 

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