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“Sell in May and Go Away…” Does This Apply to Real Estate Investing?

by Jimmy Moncrief on April 29, 2014 · 3 comments

  
Spring

There is a common stock-market adage that says, “Sell in May and Go Away.”

Historically, this is actually pretty good advice if you get back into the market in late September. But let’s take steps a little deeper.  Why is this and how does it relate to the real estate market?

USUALLY, people invest their annual retirement contributions and pension funds adjust their asset allocations in the first quarter. This, along with some spring weather and optimism, usually leads to good returns.  This, of course, leads to group thing and everyone starts jumping in the market. According to Wikipedia:

“Sell in May and go away” has persisted as a profitable market-timing strategy for stock investors, according to a follow-up study by Andrade, Chhaochharia and Fuerst (2012).They find that the Sell-in-May seasonal pattern persists after the end of Bouman and Jacobsen’s (2002) sample.

This is important in showing that the Halloween effect is not a statistical fluke detected by data mining. Strikingly, in the 1998-2012 sample on average November–April returns are larger than May–October returns in all 37 markets they study. On average, the difference is equal to about 10% percentage points.

Also strikingly, the magnitude of the difference is the same in Bouman and Jacobsen’s (2002) and in the out-of-sample analysis of Andrade, Chhaochharia and Fuerst (2012). Further backtesting by Mebane Faber has shown this effect has been place since 1950.

However, you can’t turn into Warren Buffett – just investing in the stock-market when the right time comes along.  Mr. Buffett had this to say about the consensus thought: You pay a very high price in the stock market for a cheery consensus.” 

The Best Time to Buy Real Estate?

So how does this relate to real estate?

Well, in my opinion the same thing happens with real estate.  People don’t get out in the winter for anything.  In the spring and summer, people get optimistic and start buying houses.

Directly from the National Association of Realtors:

This concept is also easily understood by those outside of the industry who can picture families with school-age children preferring to purchase homes and move in the summer flooding the market during those months so as to avoid disruption to education. It is also easy to picture singles, young couples, or empty nesters remaining in the market regardless of the season. While there are undoubtedly other potential explanations behind the seasonal pattern in home sales, one does not need to understand all of the possible drivers of a seasonal pattern to understand that it exists.

According to their data, December, January and February are the worst months for home sales.  Conversely, May, June and July are the best.

I recommend you do the exact opposite of everyone else.

If you want different results, you have to invest truly different than everyone else.  You need to be buying in the winter and selling in the summer.

Related: Is There a Best Time of Year to Transact in Real Estate? (This Data Might Surprise You…)

Those of you that have followed my posts here on BP know that I LOVE buying properties in the winter! Why? Because nobody else is, which means less competition for me!

Baron Rothschild famously said:

“Buy When Their’s Blood On The Streets”

I simply say Buy When there aren’t any leaves on the tree and the grass isn’t green.

Anybody have any thoughts on this?  Hit me up in the comments.

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{ 3 comments… read them below or add one }

Curt April 29, 2014 at 2:51 pm

Nice topic, timing the market. Between Thanksgiving weekend (including) through New Years are the best buying times for houses or cars.

Reply

Dave Tanner April 29, 2014 at 4:42 pm

I’m in Ohio and I love buying in late winter (Feb & March) before everyone else comes out of hibernation. Only a month or so of heating while you get it ready for spring rush (renters or buyers)! If I buy in the dead of winter (also great buying time) it’s a pain to work on it and the heat bill is high for mud and paint to dry, plus it’s just stinkin cold. I rarely find a deal as you said, “when the grass is green”.

Reply

Sara Cunningham April 30, 2014 at 2:32 pm

I bought my last 2 properties in December and in March. Got them both for a good price and had time to get them ready to rent this Spring when people are more inclined to think about moving. Works great for me.

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