- The Washington Times - Friday, January 4, 2008

Q:My wife and I have been renting an apartment for the past five years, since we

graduated from college. We have almost $80,000 saved up and are ready to buy our first home. Actually, we have been ready, but we have held off because the market favored sellers for so long. We were not prepared to get into a bidding war.

Now it’s pretty obvious that the market has swung in the other direction and is favoring buyers. We are now concerned about buying in a market where property values are declining.

It seems that our timing in buying a house will be wrong no matter when we decide to buy. Any thoughts?

A: I have never believed that trying to time the market is a good strategy. It’s akin to day trading with the stock market.

Though it’s true that the cycles are inevitable in the housing market, it’s pretty hard to determine the optimum time to buy and sell.

What you can expect, however, is that real estate values are likely to increase over time, with peaks and valleys in between. Even with the obvious downturn in housing prices, it’s questionable whether your decision to wait five years before buying a house was a good one.

First, not all segments of the housing market have declined. Many geographic pockets in the Washington area continue to enjoy strong demand. A wise purchase five years ago could have had reasonable appreciation and be worth more today.

Second, the tax benefits of homeownership can be significant. A house must decrease in value each year for an extended period of time to justify a long-term rent strategy. As I said, real estate values tend to rise over time, while decreases are temporary.

Third, speculators with a short-term-hold strategy, hoping to flip the house and make a quick buck, are the primary victims of a temporary housing downturn, not families who buy a house, occupy it and have a planned holding period of five years or more.

During the first half of this decade, I saw many amateur investors seeking no-money-down financing to purchase a rental property. Despite a significant negative cash flow, these folks were so certain the property would increase by 20 percent or 30 percent in one year that they were perfectly happy to write a check every month in order to reap the pot of gold in a year’s time.

Though many of these folks were lucky and timed the market correctly, for many others, the pot of gold didn’t appear in time, and they are still writing checks to support a property that didn’t realize the expected value appreciation.

The Washington real estate market was out of control for several years, and I don’t blame you for opting to stay out of the frenzy. Clearly, buyers are in a better negotiating position today. However, it is true that the housing downturn is likely to continue in 2008.

Does this mean you should hold off buying for another year? I don’t think so. If your strategy is to occupy and hold the property for several years, my advice is to take your time, find the house that you really like, and buy it, without trying to micromanage the complex housing market.

Henry Savage is president of PMC Mortgage in Alexandria. Reach him by e-mail (henrysavage@ pmcmortgage.com).

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