BUYING,
SELLING & RELOCATING
The
Business Cycle and Buying a Home
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.
|