 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 also 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 buy 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.
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.
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.
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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