Recession and Expansion
There are times when the economy is
brisk and everyone feels confident
about his or her prospects for the
future. As a result, they spend
money. People eat out more, buy new
cars, and….
…they buy new homes.
Then, for one reason or another, the
economy slows down. Companies lay
off employees and consumers are more
careful about where they spend
money, perhaps saving more than
usual. As a result, the economy
decelerates even further. If it
slows enough, we have a recession.
During such a time, fewer people are
buying homes. Even so, some
homeowners find themselves in a
situation where they must sell.
Families grow beyond the capacity of
the home, employees get relocated,
and some may even find themselves
unable to make their mortgage
payment - perhaps because of a
layoff in the family.
Supply
and Demand
When the supply of available houses
is greater than the supply of
buyers, appreciation may slow and
prices may even fall, as happened in
the early eighties and the early to
mid-nineties.
If you are lucky enough to purchase
a home during a slow period, you can
be reasonably certain the economy
will begin to show strength again.
At times, real estate values may
even surge drastically. In many
regions of the country, this is
precisely what occurred in the late
eighties and nineties.
Should
You Try to "Time the Market"?
One problem with attempting to time
your purchase to the business cycle
is that no one can accurately
predict the future. Another
challenge is that interest rates are
generally higher during a depressed
market and income may not be keeping
up. For that reason, fewer people
can qualify for a home purchase than
in more prosperous times.
Why You
Should Not Wait
Plus, this strategy generally works
best for first-time buyers. People
who already have a home usually need
to sell it in order to buy their
next one. If a "move-up" buyer wants
to buy a home during a depressed
market, that means they usually have
to sell one during the slow market,
too. If a seller wants to sell his
home to take advantage of a "hot"
market when prices are fairly high,
they generally have to buy their
next home during that same hot
market.
It tends to equal out.
Finally, the business cycle can
change over time. Since 1983, we
have had two fairly long expansions
with only a slight recession in
between each. You would not want to
wait nine years to buy a home, would
you? You could miss out on a
substantial amount of appreciation
by waiting, and end up paying much
higher prices.
return to top