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The Business Cycle and Owning a Home
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Back to: Buyer Tips | Next Article: Comparable Sales and Your Offer Price
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.
Eventually, 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
The strategy of "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.
It tends to equal out.
As a last thought, remember that historically, the value of a home - even when viewed over just a 10-year period - has proved homeownership to be a solid investment. In the last 10 years, which has included some of the housing market's greatest appreciation and depreciation fluctuations, a home's value has appreciated nearly 77%, while a home purchased in 1976 is now valued at more than 6 times what it was at the time of purchase.
All Articles ©2000 Real Estate ABC
No articles may be reprinted or displayed without permission
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This information is deemed to be accurate but not guaranteed.
You are advised to independently verify any information
or data that influences your decision to purchase or sell
a property. The current listings & closed transactions
are taken from the Southern California Multiple Listing Service
and may not be the work product from any one agent or broker.
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Tony Dove, REALTOR®
Direct: (714) 283-1116
Office: (714) 282-4300
Toll Free: (800) 615-2707
Email: Tony@TonyDove.com
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© 2006-2009 Tony Dove
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