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What is the right time to buy or sell a home or other property and how to recognize the right time
The real estate market is very cyclic. The average prices of houses and other oroperties vary periodically in every country and community. In some communities this variation is downright bizarre, so that the prices climb 400% or so in a period of a few years, and then suddenly crack 300% or more in a much shorter time.
A period of rising prices can be rather long, for exmple 5-9 year, but nearly always with small intervening periods of fall. When the prices fall, it often take a lot shorter time, for example 0.5-1 year.
If you buy a hosing for the first time, it is a good strategy to buy when the prices are at such a cyclic bottom. The down periods will usually also be best to take the action if you shall sell your hosing and immediately buy a greater, more expensive one.
What you absolutely should not do, is to buy a home for the first time when a housing bubble is at its extreme. A housing bubble is a situation where the prices of homes and other properties has reached a level that is far out of proportion of the real value of the housing. In many societies housing bubbles is a real and recurring fenomenon, and these bubbles always result in price cracks, leaving many people with high loans in a desperate situation.
If you shall sell a property and not buy another, the best period to sell will of course be at the top.
The top will usually also be the best time to take action if you plan to sell your hosing and buy a cheaper one, or can wait a period before buying a new hosing.
Whatever you plan to do, it is useful to recognize when the prices have reached the bottom and when the price climbing has ceased and the time is due for a price decline or downright crack. The bottoms, the climbing periods, the tops and the falling periods nearly always follow other cyclic changes in the society, and this can help you to predict the development of hosing prices in the time to come.
CHARACTERISTICS OF THE BOTTOM STAGE OF PROPERTY PRICES
The bottom stages typically occur after a period with a substantial fall. The fall has usually been nearly as big as the prize climb in the period a while before. Also the society tend to be in a depressive economical state, where companies earn little, many are unemployed, wages are low, stock quotes are at a bottom, and many companies get broke.
But you will at the same time see beginning improvements in all these parameters. This deeply miserable state, but with beginning improvements will often signal the very bottom of a hosing price cycle.
WHAT ARE THE PROPERTIES OF A PERIOD WITH CLIMBING REAL ESTATE PRICES
When you have recognized a bottom stage, you can be fairly certain that the housing prices will begin to soar again, but usually it takes some time. In the stage of soaring hosing prices you will long have a strong improvement in the economy of society. The companies are increasing their profit, the unemployment rate goes down, the stock market rises, wages go up, and there is a growing optimism in the society.
But the hosing prices tend to rise some time also when the general economy in the society has begun to decline again, and during this beginning law conjuncture, the optimism, price rise and activity in the real estate marked tend to be intense.
Thus an overheated real estate market together with a distinct beginning deterioration in the general economy of society, signals that the hosing prices soon will stop to climb.
A fenomenon one often see in the last face of the period with price climb, is a sudden fall orice fall that is so great thet in creates som panic. But then the fall stop, optimism is regains, and the prices soar again to a new top which usually will be the very rop.
HOW CAN YOU RECOGNIZE THE TOP POINT OF PROPERTY PRICES
At the top, the general economy of society has already been deteriorating for some time, with decreasing company profits, increasing unemployment, stocks going down and increasing number of bankruptcies.
At the top the average citizen has typically accumulated a steadily more heavy dept level, due to purchase of grossly overprized real estate objects, and a historically high number of people do not manage paying interests and mortgage.
You can often recognize that hosing prices do not soar any more, but they may fluctuate somewhat up and down without any specific direction for quite a while. But this does not happen always. Sometimes the real estate market shifts right down into a crack, from a psychotic state of activity with increasing optimism about eternal price climb.
You can also get a hint by looking at historical data from past periods of climbs and falls. When the prizes have climbed as many percent as in the last period of climb, you may be at the top, or the top is approaching.
CHARACTERISTICS OF A FALLING REAL ESTATE PRICE PERIOD
The falling period tends to have an initial face with rapid fall in hosing prices, in some societies regular cracks of more than 50% over a few weeks is the norm. After this rapid fall, the prices tend to soar for a short time, but then a new fall occurs to an even lower level. There can be several small faces with regaining prices followed with periods with even greater price decline until the bottom level is reached.
The economical situation in the society tend to deteriorate rapidly during this period and the falling hosing prices accelerate the decline of the economy.
To assess when the fall is over, it is useful to look at charts depicting property prices for several decades in the particular society. The percentual fall tends to be much the same each time.
HOW MONEY IS CREATED AND SET INTO CIRCULATION
The information here is general. How money is created and managed will vary in details from country to country.
Did you ever wonder how money in a modern society is created and got into circulation. Basically it is created as dept. It occurs in the following steps:
The central bank of the society, or a constellation of private banks that has got this function increases its amount of money mostly by adding the increased value into its computer based accounts, and in a lesser extent by issuing physical bills and coins. There are usually not any physical assets of value as security for the money created. Traditionaly the national governments had a deposit of gold as a guarantee for the value of the money, but since long the amount of money set into circulation manyfold surpasses the gold stored in the tresury.
The increased money is then lended out to the rest of the banks in the country that then must pay an interest rate for the money they borrow. This interest rate is usually not fixed, but the central government or central bank will increase or decrease the interest in order to stimulate or decrease the economical activity in the country.
The rest of the banks do exactly the same. They also create money just by adding a value into their accounts. Then they lend out to citizens and business entities both the money they have borrowed from the central bank, money belonging to the customers and the money they create themselves for an interest rate.
The other banks cannot however create money this way freely, without following some rules. Usually they can lend out a certain multiple of the money they have borrowed from the central bank, borrowed from other banks, or got as deposites from customers. They must also have some money in their possession that stays in the bank for security reasons. The exact rules for this vary from country to country. Typically a bank can create and lend out 10 times the money they have borrowed themselves or have as their own possession.
People and businesses in the country must pay back the money they have borrowed plus interest, and the banks must do the same to the central banks. But the money to pay the interest does not exist in the first place, and must be created as new dept. This gives the following effect on the soicety:
The private persons and the businesses that have borrowed money must get enough saleries and sell enough to pay back both the borrowed money plus the interest. That means that the customers of the businesses must provide that money through their payment for goods and cervices. But since all the necessary money does not exist, the customers must borrow new money which is created while creating an equal amount of new dept, just by an account transaction.
But this mechanism can only work if the productivity in the society steadily grows all the time. This is not possible techically. People and businesses therefore try to solve the growing dept problem by steadily expanding their production, but at some point there are not enough new consumers for the growing amounts of goods. Therefore the system is instable. The mechanism will therefore cause the dept in the society to grow to an amount that never can be paid back.
This problem can at that stage be solved when it occurs by a controlled eraze of dept. This is however seldome done. instead one tries all kind of tricks to lesson the burden of payment until the members of the society have increased their productivity enough to pay back in a stable manner. The tricks selldome work, and the crisis is usually solved the hard way by an economic collaps.
In former days the states used to keep gold or other costly metals as a security for the value of the money, and they obliged themselves to change any money bill for a specific amount of the precious metal. Since long the amount of money in currency has surpassed these security deposits manyfold, and generally one cannot any more change a pill for precious metal from a state deposit.
Still countries use to keep some gold as a security, or at least they say they keep it for that purpose. In some countries ordinary citizens are not allowed to own gold themselves, except as an ingredient in objects, like jewelry. This regime was established under Franklin D. Roosvelt in the 1940es, and at the same time all pure gold owned by citizens were confiscated and exchanged for money.
Nobody has since then been allowed to inspect the gold deposits of the USA, and one really does not know if it is there as such any more. One posibility is that the gold is in active use for technical applications, since this metal plays a great role in military technology, for example in advanced electronics.
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