In my previous article, I explained how the market is smarter than all of us. Here are two more lessons we can learn about how the market does its thing.
Lesson #2: Timing the real estate market is not possible:
It’s impossible to time the market as none of us have a crystal ball.
Consider this scenario: Waiting to buy until the crash
Some buyers think they can postpone their purchase until the market bottoms out. There are a
couple of problems with that strategy.
- Problem #1: How to you know when the market has reached the bottom? You’d only know that the market bottomed out once it actually starts recovering. By then, you’ve missed it.
- Problem #2: If it was really that easy to time the market, we’d all be millionaires. We’d all have bought stock when it was at the bottom and sold it when it was at an all-time high.
- Problem #3: While you’re waiting for the market to crash, real estate in Luxembourg would rise. During that time, you’d be paying someone’s rent or mortgage. In Luxembourg, real estate prices have continually risen since 2004 and will do so for the foreseeable future. Recently, at a seminar organized by the BCEE, an economist explained how there are no signs
pointing to a housing bubble in Luxembourg and prices are expected to keep rising at a steady 4% per year.
Lesson #3: There is no “Below Market” house
- Problem #1: There is no such thing as a below-market home in a hot market like in Luxembourg. If a house is really priced below other comparable homes, buyers and agent will jump on the occasion and the ensuing bidding war will drive the price up to market value.
- Problem #2: The price a home sells for, is market value. If a house is listed at 700.000 euros and no one is willing that pay that price, then 700.000 euros is not market value. If the owner receives an offer for 615.000 and they accept it, that is market value. In other words, just because an owner wishes to receive a particular amount for home doesn’t mean that’s market value.
The bottom line is that no individual controls the market but rather, the market is doing its thing. All we can do is learn from these lessons and come up with a better plan of action.
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