HOW TO KNOW WHEN IT IS TOO LATE TO INVEST IN A MARKET

April 7, 2015 By Larry Arth

Here is a common concern of real estate investors. “Is it too late to invest in this market?” I love these questions as it shows investors are being purposeful instead of just buying property that produces a return on investment.

Indeed the markets have been advancing forward and with high volumes of sales and increases in home prices this becomes a valid concern. The answer, of course, depends on which market you are asking about.

The country is made up of 381 MSA’s (market statistic areas) which are essentially large cities and their surrounding areas. Each of these markets have their own distinctions and knowing when a market is about to transition from a hold market to a sellers’ market will be essential to know when not to buy. Another item of key importance is if you already own a property in a transitioning market, you may want to consider selling and repositioning your assets to the next emerging market.

If these distinctions sound more like your interested market you are most likely still in a hold market:

Unemployment is low and still shrinking

Housing inventory is rapidly selling

Rental prices are still rising

DOM (days on market) for home sales are short

Speculators are buying everything in site

Home prices are still rising

Seller’s market follows the hold market

This hold market (also considered the wealth market) is where people realize great equity growth. Following a hold market is a sellers’ market (the pendulum reaches the top and begins to swing downward). This is perhaps the most complex shift to notice. This is the market where people are making lots of money and tell everyone else about their successes. Everyone wants to get in as the highway to real estate investing is full and looks appealing to everyone else.

Take notice of the changing distinctions

As many markets in the U.S. are currently in the hold cycles, taking notice of the changing tides is important. Headlines often can suggest this change is about occur so reading between the lines to uncover these distinctions will protect you from investing in the wrong markets or holding onto properties too long within these markets.

Here are the dynamics to watch for which may suggest a transition to the sellers’ market:

Housing inventory starts to increase

DOM (days on market) time begins to increase

Speculators are still buying but only those who are not monitoring the markets

New construction is becoming abundant with a likelihood of overbuilding

Price of construction is rising

Businesses and jobs shows signs of slowdowns

Your strategy in these markets is Not To Buy!

If you already own (time to sell), do a 1031 tax deferred exchange out from this overheated market and re-invest into the next buyers’ market.

Consult with your real estate power team

If you are not certain what you should do, remember real estate is about buying and holding real estate long term. This does not mean you must hold the same property forever. If you suspect that you are in a market that is overheated and about to enter a seller’s market consult with your real estate power team and consider a move on the next emerging market.

Next Steps

>> Consult with your real estate power team

>> Move on the next emerging market

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