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What to do when the market is doing THIS!

Blog by Patricia Houlihan - Personal Real Estate Corporation | May 5th, 2010

What to do when the market is doing THIS!

Well something is definitely going on in the market-of course it is to be expected given that the interest rates went up 3 times in almost the same number of weeks.  That coupled with prices that in many areas are now at, or above, the previous peak AND the unprecedented lengthy market upswing (excluding the short downswing for 6 months in 2008) and market trends suggest we could be in for quite a long "correction".

So how does that affect sellers and buyers? Well if you are thinking of selling in the next 2-5 years, you might want to think about acting fast.  If and when prices go down this time, the market could be down for quite a while.  I just sold one of my own investment properties because I am quite certain that this time next year it will be worth a lot less than it is right now. I will put my money right back into the market but I will wait to see what happens first-if we have another drop of 20 percent or so, I will reinvest (I never try to time the absolute top or bottom of the market-too easy to get stung!). 

Consider 3 situations:

1.  The Seller who is getting out of the market completely or downsizing due to a move, retirement, etc.  Timing is most important for these sellers and my advice would be that they would have been best advised to have sold in February or sooner when we knew the market was on fire and suspected it would peter out shortly.  These sellers should sell as soon as possible now before the prices start to drop. Once prices start to fall, the decrease in price can be quite precipitous.

2.  The Seller who is buying laterally or buying up, should also act quickly as good timing could lead to significant gains:  If they can sell now and then buy in a few months, it is likely that they will have sold at a peak and there is a good chance that they may be able to buy in at a lower price or at the very least at a time where there is more selection, and less competition with other buyers, than there has been in years. Currently the market seems to be stalled or flat-but it usually isn't long before that leads to lower prices. One thing that these sellers should recognize is that even if they sell at lower than they would like, they could still gain.  It's simple math...
3.  If a $300,000 condo is hit with a market correction of 10%, the seller of that condo could in theory, have "lost" $30,000.  However if they are buying in the same market and looking at a $700,000 house, that house should also be worth 10% less-$70,000....which means they could be looking at a gain of $40,000 ($70,000 loss on house is a gain to the buyer who as a seller lost $30,000 on their sale).
Does this make sense?
If not, please contact me to discuss!