Buy Alexandria Real Estate: Scraping the Bottom of the Market?

About a year ago, I posted Waiting for the Bottom: Don't Bother.  The advice in that post still holds true and I'll repost the content of that article here.  At the Northern Virginia Association of REALTORS Economic Summit the other week, area economists stated that we are now "Scraping the Bottom of the Market" both regionally and nationally.

Here's a graph tracking average homes sales prices for the past year:

It does indeed appear that after a precipitous drop from December 2007 to January 2008, the market has been "scraping the bottom" throughout 2008, presenting a buying opportunity.

Here's the rest of that article I wrote from last year:

Everybody wants a good deal!

That's basic human nature and the basic rules of real estate, investing, the stock market, and finance.  Buy Low -- Sell High.  You don't make money by buying an item -- whether it be a commodity like gold, a house, Google stock (boy I wish I bought shares a few years ago), baseball cards, or tulips -- at a higher price than that which you end up selling it.  

People always want to time the market and try to get in at "the bottom"  This happens in the stock market as well as in the real estate market.  Stock market gurus are unanimous in advising against market timing.  Instead they suggest that investors dollar cost average by investing a consistent amount on a regular schedule.  Some times you'll be investing at the peak of the market, some times at the bottom, but most times at somewhere in between.  This way you avoid the fluctuations of Wall Street and maintain a consistent investment that grows whether the market goes up or down.

Real estate is a bit different.  Unless you are a hardcore real estate investor, you are likely purchasing your home for more reasons that mere appreciation and return on investment.  You home is a place to live, a way to become a part of the community, and for lack of a better phrase "Home Sweet Home."  Additionally, you can't "dollar cost average" your home as you are only buying it once.

Yet almost every day, I (and Realtors across the country) hear homebuyers say that they are on the fence about buying a home, because they are waiting for the bottom of the market.

Well how do you know when the market has reached the bottom?  There's only one way: when it starts going back up again.  When you wait for the elusive bottom of the market, you have to consider the opportunity costs.  If you are planning to live in the home that you purchase for a few years, then you are not shifting any real dollar costs, but rather just shifting the amount of time that you own the house.  The opportunity costs of not buying now and "waiting for the bottom" include the lack of tax writeoffs, paying rent, the possibility of higher future mortgage rates, and the possibility of missing "the bottom" and buying at a higher price.

None of us has a crystal ball and finding the bottom of the market is impossible except in hindsight.

The lesson is that hindsight is 20/20.  But trying to time the real estate market is an effort in futility. 

Buy a home when you can afford one and when you feel it is time for you to make a move.  Don't buy a home based on market fluctuations.  In the long run, Northern Virginia home prices have appreciated 7% per year over more than 30 years.  Coupled with living in the Greater Capital area and enjoying all the benefits of the region, that's a great return on investment.