Can You Time Real Estate Markets?

Last Updated on March 29, 2023 by Mark Ferguson

Many people try to time real estate markets or predict when the ups and downs will be. While it seems easy to time a real estate market after seeing what happened in the past it is much more difficult trying to predict the future. The world’s smartest economists have trouble predicting real estate markets. There are so many variables that come with real estate it is almost impossible to predict what will happen, let alone when! Even if you could have an idea of a downturn or upturn coming, it is very hard to know when the bottom or top is or how long the good or bad times will last.

Were past predictions a fluke?

Peter Schiff is known as one of the only people to call the 2008 recession and real estate crash. Peter said that the economy would crash and that real estate prices would crash as well in 2006. The problem with his predictions is that he did not appear to follow his own ADVICE! From a seeking alpha article:

“According to some of Schiff’s own clients, portfolios invested with Schiff were down anywhere from 40 – 70% last year. Ouch. (Shedlock posted an image of an actual Schiff portfolio)

Michael Shedlock points out 12 ways Peter Schiff was wrong last year:

12 Ways Schiff Was Wrong in 2008

• Wrong about hyperinflation
• Wrong about the dollar
• Wrong about commodities except for gold
• Wrong about foreign currencies except for the Yen
• Wrong about foreign equities
• Wrong in timing
• Wrong in risk management
• Wrong in buy and hold thesis
• Wrong on decoupling
• Wrong on China
• Wrong on US treasuries
• Wrong on interest rates, both foreign and domestic”

Schiff has continued to make predictions that have not come close to happening like gold reaching $5,000 an ounce in a few years and the dollar collapsing. https://www.cnbc.com/2015/12/20/the-peter-meter-assessing-schiffs-predictions.html

Peter Schiff may have known the markets were going to collapse or he may have been trying to get his name in the news, like he constantly does, and got lucky.

Another name you may be familiar with is Michael Burry, who was the investor the movie: The Big Short was modeled after. He correctly predicted the 2008 crash and did make a lot of money from it, unlike Schiff. His prediction was based on the horrible loans that were being taken out by consumers and bought as mortgage-backed securities. Unlike Schiff, Burry has not continued to make outlandish predictions that have not come true. He predicted crypto could crash and that inflation would be high. Those came true but he has not said much at all about the real estate market.

I was a real estate agent and real estate agent during the 2008 crash. My dad and I saw things that made no sense like 120% loan-to-value loans, 6-month ARMs, and investors putting no money down on rental properties. I got a stated income loan on my first house that was basically me sending a few bank statements and saying I thought I could pay back the loan. I paid back the loan, but many did not or could not.

Michael Burry saw something, most did not, even though many should have seen those signs! I saw those signs, but I was not sure what they meant or that the market would crash. It didn’t surprise me when it did, but I didn’t predict it either. My opinion is that things were so crazy and ridiculous that another 2008 lending debacle could be predicted, but we don’t have that now and I doubt we will have anything similar in my lifetime.

Robert Kiyosaki, who wrote Rich Dad Poor Dad, has also been predicting a crash for years. He actually did not predict the 2008 crash but predicted a crash in 2001 to happen around 2015 because baby boomers will start dying off. He has predicted a crash basically every year from 2014 to 2022 and has not quite hit it yet.

Why is it so hard to predict real estate markets?

There are a lot of variables when it comes to real estate. All of the things below have an impact on the market:

• Population
• Economy
• New Construction
• Jobs
• Interest rates
• Land costs
• Development costs
• Labor costs
• Material costs
• Government regulations
• Inflation
• Inventory
• Lending guidelines
• Weather
• Covid
• Time of the year
• Many more!

To try to figure out how all of these variables will work together is a little like trying to forecast the weather a month out. Even massive supercomputers cannot accurately predict the weather more than a few days out because there are so many variables at play.

A lot of people who try to predict real estate prices will often pick one or two of these variables and declare they are the reason for what will happen:

• “Interest rates rising will cause prices to fall”
• “Prices rose too fast, so they must come down”
• “The unemployment rate went up”
• “The birth rate is declining”
• “Real estate inventory has increased 10% over last month”

On the surface, these seem like legitimate reasons for why the real estate market might crash but many times these things happen and the market does not crash. The reason is that there are many other factors at play and there have only been four real estate crashes in the history of the US. 2008, the 1930s, the 1870s, and the 1840s. Those crashes were all caused by horrible lending guidelines and massive overbuilding.

Even if something seems horribly wrong like it did prior to 2008, it is hard to know when the market will decline or by how much. This is why most people get it wrong when they try to predict the market.

Don’t real estate markets move in cycles?

I also hear that the real estate market moves in 18-year cycles. Every 18 years you will see a surge in values and building, and then a decline in values and building. It is true that building tends to move in cycles but real estate values do not move in exact cycles. As I said earlier, crashes are very rare and even a drop of 10% is very rare in real estate. The 1970s had massive inflation, soaring interest rates, 2 recessions, 2 oil crisis’, and real estate prices tripled.

People say there was a crash in the 1980s and the 1990s, but there was a very small drop in prices in 1981 and a slightly larger drop in 1991 but nothing more than 10% and it bounced right back within a year.

The gray shaded areas show recessions and as you can see recessions don’t always cause a drop in prices. They may cause a drop in building but prices are much more stable than people realize.

Should you wait for prices to drop?

Many people have been waiting for years to buy real estate because they are waiting for prices to drop. I sold many foreclosures after the last crash and I belonged to many groups supporting the default industry. There was a ton of speculation that a second crash was coming after 2011. We all kept waiting for a “tsunami” of foreclosures that never came. Since that time there has been one reason or another why a crash is coming. During that time we have seen a steadily and then rapidly increasing real estate market.

The problem with timing a real estate market is that no one knows what will happen and timing when that unknown will happen is even harder. The people who predicted a crash in 2008 did not know the exact timing or how bad it would be or how long it would last. Many times, we have no idea where the bottom or the top is until years after they occur. I don’t know how many times I have heard “I’m not buying at the top of the market” the last 7 years.

So even if you know a crash is going to happen, it is very hard to time it right or buy exactly at the bottom and sell right at the top. This is why I love the saying:

“Don’t wait to buy real estate, buy real estate and wait”

I have been buying flips steadily for the last 20 years and rentals for the last 12 years. If I had tried to time the market, I would have 1/10th the net worth I do now. it can also be more difficult to find financing in a downturn and tough to make yourself buy when prices seem to be falling. Many people think they can just hop in and scoop up great deals when prices fall but in reality, it is not that easy.

Will a crash happen?

I am not saying it is impossible for a crash to happen or for prices to decline. It is most certainly likely to happen at some point in the future, but knowing when or how by how much is very difficult. I personally invest the same way if I think a crash is coming or not coming because I don’t know. I have strategies I use for flips and rentals that will work in both a declining or increasing real estate market. I may make less in a declining market, but I still make money and the increasing markets will make up for the down years. I never try to time markets as it is simply too difficult to know what will happen and you can make money in real estate with any market when you know what you are doing.