Why “Timing the Market” Doesn’t Work

By Josefin Gatsby on 06/08/2023.
Reviewed by Michelle Clardie .
How many times have you heard stories of real estate investors buying at the bottom of the market and selling at the peak, making a killing in the process?

Before you dive into real estate investing looking to replicate the success of those investors, let’s do a quick reality check. Get-rich-quick schemes, even those based on legit investment models like real estate investing, result in losses and frustration more often than they result in impressive gains. 

Now look, I’m not saying you can’t make money quickly in real estate. In fact, some real estate investors averaged returns of over 24% per year from 2017-2022 making smart investments. 

What I am saying is that you should be wary of anyone who claims they know how to time the market. I guarantee luck played a bigger factor than those investors are willing to admit! 

Let’s get real about timing the market. I’ll show you why it’s a fool’s errand. And what you should do instead!

By the Time You Find “The Right Time,” It’s Too Late

The real estate market is influenced by countless factors that are as unpredictable as the weather. Economic conditions, interest rates, supply and demand, and local market trends all come into play. Sure, you can watch the trends and base your investment decisions on hard data. But trends take time to show themselves. By the time you recognize something as a trend, you’ve missed the peak or valley. 

Take the insane pandemic-era housing market as an example.  

In April 2020, as news of the COVID outbreak spread, creating serious economic uncertainty worldwide, we watched the housing market stutter. Buyers were afraid to make a move, listings were sitting on the market longer, and home values started dipping. No one could have predicted that. All data pointed to an impending housing market stagnation. 

Then, just as suddenly, and just as shockingly, buyers showed up to the market in droves as the Fed lowered interest rates to unprecedented levels. And the buying frenzy began.

In May 2020, the median sales price in the US was $299,000. By May 2022, the median was $431,830.

Buyers who waited for signs that the market was ok ended up paying more than they would have in the spring of 2020. And those who waited for the frenzy to pass ended up paying higher purchase prices and getting substantially higher interest rates.   

How to Work the Market Without Timing It

If you focus on a long-term real estate investment strategy, you will always come out ahead. Why? Because real property always appreciates in the long run, even if it stumbles periodically in the short term. Think about the investors who bought at the worst time in modern history: right before the housing market collapse. The average buyer in Q1 2007 saw their property value plummet from $250K to $208K over two years. Those properties are now worth over $436K. And, those who invested in rental properties all those years ago have been enjoying the explosion in rental rates for over a decade!   

Having said that, it is also possible to capitalize on short-term real estate projects. If you’re going to focus on short-term gains, don’t expect the market to do the work for you; get in there and force appreciation by adding value to your properties! This will grow the value of your properties, even in a stagnant market.

Only amateurs try to time the market. Real investors focus on strategies that work under any market conditions.

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