The Home Buying Cycle
The term "business cycle" is used in economics to designate changes in the economy. It is used to describe the difficulties in general business activity that recurs over time. The home buying cycle applies. If one expects to find a simple, regular pattern of these difficulties, he will be disappointed. Economists cannot predict with any great degree of accuracy just when an upturn or a downturn will occur, but a study of such cycles does show that business activity tends to follow a pattern and is not merely an assortment of random moves.
Phases of the Business Cycle
The prosperity phase refers to the peak – the highest level of the cycle. It is characterized by the full employment of the economy’s resources. The economy is at its peak. Wages increase, and overtime work is offered. People feel secure about their future. They can afford to buy expensive jewelry, cars, and homes. But when prices get too high, buyers (home buying) will resist it and demand will decrease. When this happens, profits will drop, consumers will cut production, and workers will be laid off. People will keep and save their money, afraid to invest it in real estate. The recession real estate phase has set in. This is a period of declining demand and business activity. Bank loans go down, and prices increase less quickly or may even fall. Prices will decline, too. Consumers will hold off on their intended expansion, investment falls sharply. The depression phase starts – the lowest level of the cycle. Factories will be forced to close and the unemployment rate will be high. Fewer people will buy homes (home buying). Others who already own homes are not able to make their mortgage payment. Others decide to sell. But due to several factors like government action or the rising again of demand, there will be an upturn in the economy. Slowly but surely, recovery starts. It gives way to the expansion phase, a period of increasing demand for business activity. Potential buyers expect prices to go up and therefore, wish to buy before the prices rise. Employment increases again giving home-buying purchase power. And a new real estate cycle begins.
Home Buying Supply and Demand
Home buying demand for a good is the set of quantities that buyers would purchase in a particular real estate market in a given period of time at various possible prices, various possible incomes, or various prices of related goods. At any particular moment, the lower the price of home buying is, the greater the quantity that would be demanded.
Selling and Home Buying Supply
The supply for a good is the set of quantities that sellers would offer at various possible prices in a particular market in a given period of time. When the supply of available homes is greater than the demand for them, prices may fall. Homeowners are lucky if they were able to purchase their homes during a slow period as the real estate economy will surely begin to show strength again.
Timing the Home Buying Market
The wave-like nature of the business cycle makes it difficult to time the home-buying cycle. And interest rates are also higher during the depressed phase wherein income is low which means less chance of being qualified for purchase. Is the real estate housing market and/or home buying going to flourish or flop?
Home Buying – Should You Buy or Wait?
If you think waiting for a good real estate housing market, where you get better deals on interest rates, is a good idea when you plan on home buying, think again. During the prosperity phase, interest rates are higher. Who would want to buy a home at a high-interest rate? While during the recession phase, interest rates go down making home buying more affordable but, employment is unstable, and income is low. So, how can you afford to make a home-buying purchase at this stage? It is such a complicated process but the bottom line is if you have found your dream home and you can afford it, go and buy it now!