Timing Your Purchase to the Market Cycle

One problem when you try to time your purchase with the business cycle is that even experts have difficulties with properly predicting the future economy. Even when they can, the real estate market doesn’t have to be aligned with the stock market or the economy as a whole.
If the economy is developing, interest rates are typically higher. The outcome is that fewer people can afford houses. When the economy slows down, interest rates decrease, the “affordability index” rises and more people can afford houses.
Therefore, this cycle isn’t really synchronized with the rest of the economy. Additionally, it is influenced by the number of people employed, whether they are well-paying jobs, and consumer outlook for the future. All these issues make it difficult to predict if the housing market is going to develop or bust.

Why You Should Not Wait to Purchase a Home

People who already own a home typically need to sell it in order to come up with the down payment for their next house.  Even if that is not the case, they would have to carry the debt and obligations on two homes at the same time.  This can contribute to financial hardship, even when you rent out the previous house.  There are maintenance costs, renters don’t always make their payments on time, the rent may not cover the mortgage and other costs, and in some cases the property may be vacant.
Therefore, if you are a move-up buyer and intend to buy your next home during a depressed market, you normally have to sell your current home during that same depressed market.  If you want to sell during a boom, then you also have to purchase during the same boom

Recession and Expansion

Sometimes the economy is brisk and everybody feels confident about his or her prospects for the future. Therefore, they tend to spend money. People eat out more, buy new cars, and they purchase new houses.

But ultimately, for one reason or another, the economy slows down. Companies lay off employees and people are more careful about where they spend money, probably saving more than normally. As a consequence, the economy slows down even more. If it slows enough, we witness a recession.

During such a time, fewer people are buying homes. Even so, certain homeowners find themselves in a situation where they have to sell. Families grow beyond the capacity of the home, employees get transferred, and some might potentially find themselves unable to make their mortgage payment – perhaps because of a job loss in the family.
In the business cycle of real estate, there are buyers’ markets and sellers’ markets.  The whole market is based on supply and/or demand.

Supply and Demand

During sellers’ markets, homes sell fast and sellers have a lot of pricing power. Consequently, prices rise more rapidly than at other times. During buyers’ markets, homes may remain on the market for some time before selling, so sellers become more flexible and may even decrease their prices.

In real estate, the connection between supply and demand is evaluated as “available inventory.” At the current sales pace, how long would it take to sell the total number of homes available on the market? This is the method used by the real estate industry to measure inventory.

Inventory can be measured in weeks and months. Longer inventory periods are connected with buyers’ markets. Shorter inventory times are associated with sellers’ markets. Certain buyers and sellers hope to time their purchase to benefit from market cycles.