by Michael Dreyfus
That's the question we real-estate agents are hearing a lot today from our sellers trying to time the market. And, while the ramifications are complicated, the answer is simple. If you try to time the market, you must accept the very real risk of losing big.
We are in the second half of our latest real-estate run. The problem is no one knows if it is early in third quarter or late in the fourth. In these late-run scenarios, prices have gone up between 15 percent and 30 percent — tremendous amounts of appreciation that any seller would love to capture.
The problem is, if you overshoot the peak and end up in the correction, prices can (and have) dropped as much as 20 percent on the medians and 40 percent on the high end. More importantly, it will most likely be five years before you see that peak price again.
For the rational, risk-averse seller, or anyone who wants to sell in the next five to seven years, now is the time. You know you've got significant appreciation out of this market run and you can eliminate the risk of missing the moment and getting put on the wrong side of the trend.
The chart below shows long-term appreciation of Palo Alto real estate. Palo Alto is the best performing market on the peninsula, with the highs being higher and the lows being less extreme. Other peninsula communities can see multiples of 1.5 to 2 in downturn performance relative to Palo Alto. So the risks you see inherent in Palo Alto trends are even larger in other communities.
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So, if you are thinking of selling, get on with it. There is a quote that floats around the investment community that is sometimes attributed to Warren Buffett (although I've found no evidence that he said it), which is: "When the wealthy man was asked how he obtained his wealth, his response was 'I never sell high.'"