The financial term “catching a falling knife” refers to buying into a market where prices are falling and then continue to fall after buying. There is a reproaching quality to the term, similar to someone wagging a finger and shaking a head.

A recent Reuters article had that reproaching quality. The article pointed out that more than one million Americans who had taken out a mortgage in the past two years are now underwater: The implicit lesson being, according to Reuters, that they should have waited and that they should have put more money down.

The reality is that it's impossible to call a market bottom, but in the long term it's nearly always better to buy into a market after a precipitous drop than after a precipitous rise. In other words, whoever bought or refinanced a house over the past two year has made a smart decision that will work out to his or her advantage over the next five years. 

The good thing about real estate is that it's nearly always a long-term investment. Better yet, it's a long-term investment that doesn't continually bombard and upset owners with price updates. That means Reuters attempt to alarm likely fell on deaf ears, and that, too, is a good thing.

Courtesy of Jessica Regan.

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