The Business Cycle and Buying a Home

By
Real Estate Agent with ERA Evergreen Real Estate

I've always looked at real estate the way I look at stocks.  Prices are a continuous cycle.  They go up and they go down and than start all over again. Generally the best time to buy stocks is when prices are low, keep it and sell it when prices are high, right?  Well when you think about it; the real estate market is the same.  We can't always wait for the business cycle to buy a home however at this time that is where we're at, home prices are low and it is a good time to buy.

 

 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 a lot of money. People eat out more; buy new cars, and....they buy homes! 

Then, for one reason or another, the economy s-l-o-w-s down, as it is now. Consumers are more careful where they spend their money and perhaps saving more than usual. As a result, the economy decelerates even further. If it slows down 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 OR even face the possibility of losing their homes.  Families grow beyond the capacity of their current home, employees get relocated, and some may even find themselves unable to make their mortgage payment - perhaps because of an illness or layoff in the family or they purchased during the time home prices were at their highest and owe more than they borrowed or may have an adjustable mortgage rate increase making for a much higher payment than they can afford, etc.

 

Supply and Demand

When the supply of available houses is greater than the supply of buyers, appreciation slows and prices may fall as evidenced during our current market.

As a buyer, if you are lucky enough to purchase a home during a slow period as we are now, you can be reasonably certain the economy will begin to show strength again. At times, real estate values may even surge drastically. As an example, this is precisely what occurred in many areas of the country, including Beaufort County. Our real estate values started increasing slowly in 2002, accelerating quite rapidly until they reached their highest peak during 2005. I personally noticed a slow down in mid-to-late 2006 and a steady decline since.

 

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. The turn-a-round could happen so quickly, you won't even see it coming. In the past, another challenge faced was that interest rates were generally higher during a depressed market and income was not keeping up. Although income may or may not be keeping up now, depending on the individual, one thing for certain is the interest rate continues to remain fairly low, EVEN if increased slightly, it's low.  Yes, it is harder for people to qualify for a home mortgage than in more prosperous times since banks have gotten tighter with their qualification process.  It's being done the old fashioned way which is not new to many of us.  However buyers listen...home prices are stabilizing and are more affordable. There are buyers who are not sitting on the fence and they are taking advantage of this cycle and purchasing homes.  Real estate continues to be a good investment.  

 

Why You Should Not Wait

Plus, this strategy generally works best for first-time buyers with good credit and for those lucky buyers who do not have to sell in order to buy.  The majority of those 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.  

So....it tends to equal out either way!

Finally, the business cycle changes over time. Some of us have seen expansions with only a slight recession in between each and you could say as you read this, we are going through one now.  As a buyer, would you want to wait another year, two years or longer to buy a home? You could miss out on a substantial amount of appreciation by waiting, and end up paying much higher prices later.  And as a seller wanting to realize the most profit from the sale of your home, this is simply not the time if you don't have to sell.  Keep your home off the market...live in it or rent it out but it is in your best interest to wait for the cycle to change.  Think of it as the stock market.    

 

 

  

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Anonymous
Rod

Mary - your insight has proven to be very accurate and reliable.  Thank you for all your time and effort.

-Rod

Dec 08, 2010 12:29 PM #1
Anonymous
Rod

Mary - your insight has proven to be very accurate and reliable.  Thank you for all your time and effort.

-Rod

Dec 08, 2010 12:29 PM #2
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