The Business Cycle and Buying a Home

Timing Your Purchase to the Market Cycle

One problem with attempting to time your purchase to the business cycle is that even experts have problems accurately predicting the future economy. Even when they can, the real estate market does not necessarily move in tandem with the stock market or the economy as a whole.

Part of the reason is interest rates.

When the economy is doing well, interest rates are generally higher. The result is that fewer people can afford houses. When the economy slows down, interest rates fall, the "affordability index" moves up and more people can afford houses.

As you can see, this cycle does not move "in sync" with the rest of the economy. It is also influenced by how many people have jobs, whether they are well-paying jobs, and consumer outlook for the future. All these factors make it difficult to know, in advance, whether the housing market is going to boom or bust.

What makes most sense is the "buy and hold" strategy. Buy a home you expect to remain in for at least seven years or more.

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