Simple Economics: Buy Low. Sell High.

It sounds incredibly simple, but "buy low and sell high" needs to be the basic tenant for any investment in real estate.  Like with the stock market, it is incredibly difficult to gauge the precise bottom of a bear market or the exact peak in a bull market.  Real estate is similar.  If you can buy within 20% of the bottom and sell within 20% of the top, you will do extremely well.

Where are we today?  The answer is, "it depends."  But my guess is that the real estate market where you live is in the bottom 20% of where it will be in the next 10 years.  That likely means that if you purchase a home to live in or as an investment in the next six months to a year, and hold it for 3 or more years, you should see a nice return on investment.

As I said in my previous blog "Don't Forget Leverage," in real estate the buyer usually leverages around 80% on a purchase.  If the market is near its 10 year low, the leveraging of 80% on a purchase could make the investment in a home a great deal.  Of course, this is only true if the price goes up after purchase.

You need to look at the three keys to a good decision:

1. Does the home enhance your quality of life?
2. Is the home a good value?
3. Do interest rates help you afford the home?

The law of supply and demand also impacts future values. Right now, inventories of homes are moving down because values are good and builders have slowed to a crawl.  With lowering inventories of homes for sale, as demand picks-up there will be fewer homes from which to choose. Demand exceeding supply makes prices go up.  (This is the opposite of the supply-demand cycle over the last two years.)

Buy low and sell high.  If the home fits your personal needs, and if the price of the home is reasonable, and if interest rates help you afford the home, and if demand will exceed supply in the next five years; perhaps now is a great time to buy a home.

Each location must be analyzed carefully, but the trends seem to indicate that now is a great time to buy a home.  If your income is stable or growing and if you can afford a reasonable down payment, now might be the time to "go-for-it."  Think about it.