In today’s article Economic Cycles & Home Buying we’ll discuss the relativity between the US Economy and consumer purchases in residential real estate. Obviously nobody has a crystal ball but if you follow your local real estate market you’ll begin to see trends associated with the economy. Each state is different with regards to trend timing but all and all every market does follow a trend and usually they’re no more than 6 months from each other. California for instance is typically about 6 months ahead of Hawaii’s real estate market.
When the economy is good consumers feel confident and essentially spend money. This means consumer spending on all levels from simple purchases like new shoes, clothes, etc and eating out to new cars and even houses. There is one exception to the residential real estate market with regards to buying and that’s during the winter holiday season. During the holiday season sellers will see a slow-down in the real estate market. Buyers tend not to want to purchase a new home and move during the holidays so although there are still purchases due to the holiday season, it’s much slower typically from the busy spring and summer buying season.
Economic Cycles & Home Buying
What happens when we have a down economy? When layoffs occur, business slows down and interest rates rise you’ll start to see a slow down in people spending money. This change affects the real estate market because people aren’t looking to make a move into a new home. Consumers in a down economy will want to hold on to their money and stop spend it as freely as when the economy is good. If to much hysteria occurs of “I need to save my money” then we end up in a recession and ultimately a very severe buyers market.
Once this happens, prices can drastically drop on real estate and sellers become desperate in their need to sell. Essentially the sellers need to sell becomes a must sell which further drives down the residential real estate market and it’s pricing. This change may occur for many different reasons like layoffs, relocation, etc but all have to do with the scale tilting in the economy from good to bad. In scenarios like this homeowners may find themselves in a situation of not being able to make their mortgage payment which creates the necessity to sell. When these unfortunate events take place you’ll see many homes on the market that go into foreclosure and sellers looking to short-sell their properties.
The basic real estate market can be summed up in economics 101 of supply and demand. The more houses that are available the less the homes are prices wise and thus creates the buyers market. When supply is reduced by buyers purchasing inventory then you have a sellers market which drives up real estate prices. Seller markets are usually defined as having less than 3 months of inventory in a local market. For more information on market trends and statistics please leave a comment below.