How do you decide a market has "turned" for you?

Question

For those of you who've been through a full real estate cycle, I'm curious. What finally made you stop buying in a market that had been good to you?

Was it prices getting too far ahead of rents? More homes sitting on the market? Or was it something you started noticing just from being out there doing deals?

I've been watching housing markets for a lot of years, and one thing I've learned is that the market usually gives you some warning before prices start moving.

When listings keep piling up but pending sales aren't keeping pace, I pay attention. It's not a perfect signal, but I've seen it play out many times.

Of course, some of the best investors I know can feel a market changing before the numbers catch up.

I'd be interested to hear from those who've been through it. What made you decide to stop buying, and looking back, did you make that call too early, too late, or just about right?

Alim Abrahim · Answer

I'd use the past as a reference: learn the nature of a market, then you know what to expect from it.

Some markets have big appreciation runs, and when something like an economic turn or a rate hike slows real estate down, values and even rents take a hit. Texas saw great rises, and then some rents and property pro formas went soft once rates slowed things down.

Other markets grow slowly and consistently without that volatility. You won't see the peaks, but you won't see the valleys either. It's a lower-risk proposition, and a market like that is easier to read.

As builders in our market, we pay close attention to how much we're building and where, so we don't dilute our own market. It's almost like the market moves in slow motion, and you have a much clearer sense of what's going on than in markets that boom and then drift.

How do you decide a market has "turned" for you?

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