The Market Cycle and Buying a Home

The Market Cycle and Buying a Home

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 houses.

Then, for various reasons, the economy slows down. Companies lay off employees and consumers are more frugal about where they spend money, perhaps saving more than usual. As a result, the economy decelerates even further. If it slows down enough, we have a recession.  The bonus to a recession is that interest rates usually decrease, making it more affordable to some to purchase a home.

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 or cut in wages.

Supply and Demand

When the supply of available houses is greater than the supply of buyers, appreciation may slow and prices may even fall, which is what 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.  Once, the economy speeds up and the recession is over there is a dramatic increase in home equity due to appreciation in real estate.

Market Timing is Difficult

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 because less overtime is available and bonuses or commissions are down. With higher interest rates and lower earnings, fewer people can qualify for a home purchase than in more prosperous times.

Why You Should Not Wait

Plus, "timing the market" 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.  Which equalizes the playing field.

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. Although we cannot predict the future, since we are slowly coming out of a recession, interest rates have gone up a bit from 5% to the mid 6's, and inevitably the real estate market prices will go up.

The Best Time To Buy

Realistically, the best time to buy a home is when you are emotionally and financially ready.  When you are ready to buy, give me a call, I would be honored to assist you in your real estate needs.

Regards,

Tamie Brown