Timing the Market

For a Condo Purchase

By June Fletcher

Question: I bought a condominium several years ago, and the value has gone up quite a bit. The condo doesn't have all I want, so I am thinking of selling and renting a less costly place for a year or so, waiting for my ideal condo to go down in price. Since timing is everything, do you know of any predictors that would give me clues as to the direction of condo values? This is my first real-estate purchase, so could you tell me how quickly market prices turn around?

-- Pat Sigel, Hartford, Conn.

Pat: This may be your first real-estate purchase, but you're savvier than other more-experienced investors. For instance, you know that location, location, location aren't the only things that matter in real estate. Timing, timing, timing, though equally redundant, is equally critical.

The problem is that no one can predict the precise peaks and valleys of real-estate cycles any more than meteorologists can predict the exact path or intensity of a hurricane. And while most experts agree with Federal Reserve Chairman Alan Greenspan that the housing market will inevitably "simmer down," and that "home-price increases will slow, and prices could even decrease," nobody really knows when or where this will happen.

So everyone is watching the skies, waiting for signs of a storm. Economists scan the horizon from a distance, looking for changes in a city's housing supply and demand. On the supply side, they look at such factors as housing permits (the number of new homes builders say they will create), starts (homes they are beginning to build), closed sales, pending sales (signed contracts), pre-sales (homes sold before a building gets a certificate of occupancy) and inventory (how many homes are available for sale). To gauge demand, they look at job growth, unemployment rates, household formation, in-migration and out-migration (how many people are moving in or out of the area), the number of investors, mortgage applications and the length of time homes are on the market.

They plug these statistics into complicated mathematical models, then adjust for other forces that may be blowing through the economic landscape, like upticks in mortgage interest rates or slowdowns in gross domestic product growth. Then they readjust for gut feelings. The results aren't perfect, and their estimates of price changes are sometimes off by as much as three percentage points, but they do give you a sense of which way home prices are heading.

For instance, Fiserv CSW Inc., a Cambridge, Mass., economic-research firm, is predicting that the 9.7% home-price growth that Hartford enjoyed in 2004 won't last, but the rate is expected to remain positive. By March 2006, annualized home-price appreciation there will be 8.7%, the company predicts; by March 2007, it will be 7%.

Understand that numbers like these don't really give a complete picture of the microclimate in your neighborhood. When a big employer shutters a plant on the other side of the city, for instance, it will affect local employment and may have an impact on prices of nearby homes -- but won't necessarily affect your house. So pay close attention to what's happening in your community, street and building. When neighbors stop bragging about bidding wars and start wondering if they should replace the kitchen before putting their homes up for sale, you'll know your market has passed its peak.

Keep in mind that unless some rare catastrophe occurs that dramatically and immediately affects home values, it may take up to six months for homeowners in a hot market to realize that they aren't going to get top prices anymore.

Check out the lists of recent sales that your local real-estate agents provide, and ask them where they think the market is heading. But don't put too much stock in their views. For them, it's a professional necessity to always see sunny skies.

-- The "House Talk" column appears most Fridays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.