Real Estate: The Big Question

Buying in a Bear Market?

So, is it time to buy? The smart money says it's time to buy when everyone wants to sell, or as they put it on Wall Street, when blood is running in the streets. That's the secret of making the best of a bear market.

But the housing market is different from the stock market.

Declines in stock prices are far more visible -- and universal -- during a bear market. Stocks are "fungible." That is, 100 shares of Cisco (CSCO Quote - Cramer on CSCO - Stock Picks) or Sun Microsystems(SUNW Quote - Cramer on SUNW - Stock Picks) are like any other 100 shares of those stocks.

But all houses -- even ones built in the same neighborhood, by the same builder -- are slightly different. A two-bedroom condo might have better appliances or a more appealing décor than the same type of unit in the same building. So it's hard to make price comparisons in housing, even with the existence of monthly median statistics.

And there's another big component in the real estate market: visibility. Sale prices aren't published for weeks, until a deal closes. So it takes longer for a declining real estate market to be analyzed and to run its course. Meanwhile, changes in the well-known stock indices are tracked instantly and compared on a day-by-day basis. As a consequence, emotional trends tend to gain momentum more quickly in the stock market.

A generation of investors was scared out of the stock market by the 2000 crash and subsequent bear market. Many came to view real estate as the correct alternative for creating wealth. Now the differences in the two types of investments will become apparent. After all, the Dow has made new highs in a relatively short time period of time. It's unlikely that real estate will make a similarly timely rebound from its eventual low.

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