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.
