The housing market is cyclical, which means that it is always in a state of change from a buyer’s market to a seller’s market and back again. Generally it is determined by many factors similar to the supply and demand theory in economics. However, in real estate we don’t just look at the supply of houses and demand for houses; we look at the availability of money for mortgages and the employment situation.
We have just come from the big housing boom that began in the
1990s and continued until 2005. During the boom time the number of houses built significantly grew, the amount of money available for mortgages was high, the number of houses sold was high, and the price for each house continued to rise. It was a true seller’s market. For those of us who watched as home prices became overheated, we expected that at some point the overheating would cool down.
In 2005, we began to have a cooldown. The number of new homes being built slowed and in some areas stopped. The number of homes being sold fell. About the same time, many adjustable rate mortgages went from the original stage of very low mortgage payments to oppressively high monthly mortgage payments. The real estate market slammed into a buyer’s market. The truth was out, home prices had far exceeded any increases in salaries. In fact, due to the high amount of downsizing and outsourcing, many homeowners were either underemployed or had been unemployed for such a long period of time that they had fallen off the radar for being counted as unemployed by the government.