zk, I’m happy to elaborate. I got my data from Cash in on the Coming Real Estate Crash, by David J. Decker and George G. Sheldon. Mr. Decker is a professional RE investor, and founder of Decker Properties. He’s been in the biz for 20 years, through several ups and downs. I found this downturn easy to time. Very easy. I might have missed the top by a few months, but I only lost 5% of my selling price by selling in January 2006 rather than at the peak in August 2005. If I had been tracking the leading indicators, my timing would have been better, I’m sure. (Or at least, according to Decker.)
According to Decker, the most important index in a recovery is the Housing Affordability Index (Chapter 4 of the book), a government published measure of the ability of the median income to afford a median priced home. Scores below 100 show increasing difficulty with buying a home. You can google this, and get local results. NAR publishes regional HAIs quarterly.
“The first signs of recovery in residential single-family homes will occur in the leading indicators, days on the market, months of supply, and mortgage applications….Before prices begin to recover, homes will be selling more quickly, the months of supply will begin to decline, and mortgage applications will increase…Understand that you do not need to wait until inventories have declined to the 5.5-6.5 months supply of a vibrant market before starting to invest. In fact, those getting in at the beginning of the recovery will do the best. Just know which direction the indicators are headed and invest before they return to normal levels.
The key to profiting from a crash is to buy just befoer the recovery becomes widely obvious. Remember that real estate markets can remain in the doldrums for decades…Some real estate owners will be able to sustain periods of negative cash flow or unemployment by relying on their reserves. Therfore, it takes more time before sellers become truly desperate.
While all of this is occurring, you may be tempted to buy. After all, you may be seeing prices not experienced n a decade. However, lower prices alone should not be the sole impetus in a buying decision. Look at the data and indicators outlined in this book. Make an educated guess at whether the market has hit bottom. It is important not to buy too soon. By waiting, you may be able to take advantage of increasingly desperate sellers. For the investor with limited staying power, having the ptience to wait until recovery is certain is a must or you may pay a high price for any mistakes you make in timing the recovery.”
Here’s another post about the topic: a brief history of the last bust.
