Bubble Sitting

Les Christie of CNNMoney writes about the idea of sitting out the real estate market, waiting to buy again when it reaches a "low point."

Just this week, builder Toll Brothers announced they expected sales to decline substantially for the year.

"With many potential buyers on the sidelines right now, we believe there is growing pent-up demand that will come into the market once buyer sentiment improves," said CEO Robert Toll.

He does not, however, think bubble sitting works. "It’s very hard to pick a bottom," he said.

Bubble sitters might argue, though, that it has worked for new home buyers this year. They are, after all, receiving discounts and incentives that were nearly non-existent last year.

Dean Baker, an economist and co-director of the Center for Economic and Policy Research, is a bubble sitter himself, having sold his home a couple of years ago. "It is a very bad time to buy. Prices are heading down," he said.

Baker also predicts that the markets that have run up the most will suffer the worst turndowns. He compares it to the tech bubble when Nasdaq stocks rang up the biggest gains before the pop and fell the farthest from their highs after it.

Even though he did it himself, Baker says most people should not sell in anticipation of getting back into the market at a lower price.

"I don’t think people want to speculate on their homes," he says.

In 1998, many of us in real estate heard chatter about a housing market collapse. Prices just "couldn’t go any higher." Many people sold their homes, or put off buying one as they rented, waiting for the inevitable dip in the market. (For the record, at the time that was not my recommendation at all).

A few wisely got tired of waiting and bought something, but many of those same people continue to throw money out the window today, in the form of rent. Not only have they continued to watch the market climb, but they now have little hope of attaining property at those "insane" 1998 numbers.

That said, there is no denying that there has been a significant cooling period in the market. Bernanke recently held up on interest rate increases, and a buying blip has seemed to appear in the past two weeks. After many months of quiet, properties that have been sitting on the market are finally yielding offers that are now acceptable to the sellers. A meeting of the minds is indeed beginning to happen.

Those who are waiting for a further dip may be seen as they wise ones this time next year–but timing that is not a task that I would like to attempt. But those who have an ownership horizon beyond five years seem to be once again ready to take the plunge.