Timing the Bottom of the Housing Market Unimportant

“Are we there yet?”  This is a question fielded to me almost daily by investor clients wanting to know if now is the right time to step into the Las Vegas investment real estate market.  Have prices started rising again?  Have we (finally) reached the bottom?

Over the last year or so I have answered this question by providing my clients with a barrage of data supporting the notion that we have, in fact, reached the bottom of the real estate crash in Las Vegas and that we are headed up.  (This data has only become more compelling in recent months.  Median home prices in Las Vegas have risen for the past eight months in a row.)  

But, perhaps my answer, accurate as it is, is not the most informative.  Perhaps the best answer to the “Are we there yet?” question is “It doesn’t matter.”  Lawrence Yun, chief economist for the National Association of Realtors, wrote an article recently discussing real estate trends over the last 30 years.   The statistics he shared were surprising even to a die hard real estate proponent like myself.  Yun revealed that in the 30 years from 1981-2011 home values more than tripled!  This to spite enduring the worst real estate crash on record.  This means that households who purchased properties 30 years ago are seeing a nice return on their investment.

Yun also highlighted an enlightening fact contrasting the financial position of home owners vs. renters.  Renters’ typical net worth today is $4,000.  This hasn’t changed much over the last few years, as renters have remained mostly insulated from the losses sustained by the housing market.  However, while the average net worth of home owners has dropped significantly since the housing bubble burst, it remains around $160,000, significantly greater than a typical renter.

These facts illustrate an important principle of long term real estate investment strategy...if you buy to hold it doesn’t matter if we’ve reached the bottom or not.  Those who bought real estate 30 years ago made a very successful investment even though their home values declined dramatically as a result of the housing bust.  Obviously, in order to turn a profit, it is important to avoid buying real estate at the absolute top of a precipitous market, but if you make sure that your properties cash flow at the time of purchase, you are virtually guaranteed that you will see positive appreciation over the near and long term.