The Business Cycle and Buying a Home

The economy plays a vital role when we make purchases. When the economy is healthy we tend to become comfortable and confident, so many of us buy houses. However, when the economy slows down, we find companies laying off a large number of people. We make a decision to decrease spending. Sometimes, homeowners must sell their homes because of a company layoff, or an unavoidable relocation.


Early in the eighties and around the middle of the nineties, the supply of available homes exceeded the supply of home-buyers. This supply and demand effect can slow appreciation, causing home prices to fall. Purchasing a home in this slow period can be ideal because you can almost always expect the economy to bounce back, allowing your home’s appreciation to build, sometimes rapidly.


Because the interest rates are usually higher while the market is depressed, the amount of people qualifying for home purchases are exceedingly less than in prosperous times.


This plan usually 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 homeowner wants to buy a bigger, or upscale home during a depressed market, they usually have to sell one during the slow market. If a homeowner wants to sell his home to take advantage of a prosperous seller’s market when prices are fairly high, they generally have to buy their next home during that same high market. So, it tends to equal out.

The business cycle can change over time. Since 1983, there were two fairly long expansions with only a minor recession in between each. With this in mind, why wait? You would not want to miss out on a healthy amount of appreciation, would you? Not to mention the higher prices you may have to pay for waiting too long to buy your home.