Buyer's Guide
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.
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RealEstate ABC. No articles may be reprinted or
displayed without permission.
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