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The real estate market can be terrifying, which is part of the reason I love it so much. But it can be downright petrifying when it involves what may be your most valuable possession: your home. The market changes every day, sometimes every minute. For home buyers, some of whom will buy one house in a lifetime, trying to time the market perfectly can be a ridiculous waste of time. In ten, twenty, or forty years, any small variations in the price of your house will have amortized into a blip on your financial radar screen.

You have to go with your gut, and if you love a house and you can afford it and your broker assures you that you are paying a fair market price, you’re paying the best price. It’s as simple as that. When it comes to your home, don’t be concerned about spending more than it’s worth if you know that you will be there forever and you’ll be happy there. Sometimes the emotional price you put on a house may exceed the market price. Buying a home is different from the pure economics of investing in real estate. If you simply cannot afford a house that you love, don’t be shy about underbidding; sometimes the seller will surprise you.

What is the meaning of the bold sentence in the above paragraph? Will the change of the housing price affect your financial situation or not? I think it won't affect it at all. But the Chinese version of this book translates it into 'will affect your financial situation'. Is that right?

  • Did you look up the word "amortize" in the dictionary? What did you find out? That's really the key to understanding what this sentence means. The Chinese translation is not accurate. – Andrew Feb 13 '17 at 2:58
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    @Andrew I have checked the meaning of "amortize", which means "to pay back money that you owe by making payments at regular times". My understanding of the bold sentence is that the money that you pay for the house now will not affect your financial situation too much since it will be amortized over 10, 20 or 40 years. Is that right? – Henry Wang Feb 13 '17 at 3:45
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The verb "to amortize" is a term used in accounting. It has various meanings but in this context it means:

to write off a cost of (an asset) gradually. Dictionary.com

The author is saying that, over the period where you own the house, small variations in the price will amortize to very small amounts. So you shouldn't worry about trying to "play the market" to get the best price, since these variations will not seriously impact your finances.

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The paragraph before this sentence is talking about how quickly the market changes. House prices can fluctuate rapidly, and all buyers (and sellers) want to get the best prices. This can lead to people getting overly concerned over the price, and thus trying to "time the market" to buy at the lowest price or sell at the highest price.

The author is arguing against timing the market because, even though you may get a better price, that benefit will be spread out over so much time that it becomes irrelevant.

Let's say that you find a house that you want to buy, but it is $5,000 too expensive. $5,000 sounds like a lot, and if you had to pay it all at once, it might be. But if you live in that house for 10 years, then that $5,000 will wind up being an extra $42 per month (5,000 / 10 years / 12 months per year) - and $42 per month is not going to make a major difference in your financial well-being. "A blip on the radar screen" means something that is not significant.

The reason why "amortize" is used as the verb here is because amortization is the process by which variations become "blips". Paying $5000 all at once is more difficult than paying $5000 over the course of decades.

  • Your calculations are incorrect, but a discussion of how to properly amortize a fixed asset is beyond the scope of this site :) – Andrew Feb 13 '17 at 3:51

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