As a Baby Boomer, I remember and experienced the cycles of the economy and the affects upon the real estate market. When I started real estate in the early 1980's, the economy was just getting through a recession. In December 1982, unemployment was at a high of 10.8%. By 1985, it fell to 7.3% with little movement in prices. Sometime in this period from 1984 through 1986, real estate started to boom, with prices souring. As a real estate agent during this time, I remember the phones in my office were ringing off the hook, with people calling to buy a house. There was no shortage of buyers in that market and it was a true "sellers' market." People were paying close to full asking price because they believed that the market was going up and that they could sell it right away at a profit.
The economy was recovering and unemployment in these years was good. Interest rates, although high in this period, about 12% (down from a high of 18% in 1982) for a fixed 30 year term mortgage was easy to get, as compared to today's strict standards. Then, in 1987, there was the stock market crash. October 19, 1987 is referred to as Black Monday. This was a world stock market crash and the DOW dived by 508 points in one day. Everybody believed that the market was bad, so people started to be concerned about real estate as an investment. Prices started to level and eventually fell. This slow period for real estate lasted from about the early 1990's and continued through the late 1990's. There was a Saving and Loan crises during this period where many small savings banks had either closed or were merged with more solvent banks.
During the period in the mid 1980's, the market for coops and condos also started to surge, as most apartment building owners had converted their rental units to coops. At some point in the middle 1990's, there was a glut of cooperative units and the price of units sold to consumers had plummeted to prices far less than what they paid. By early 2000, the market was again steady with the price of houses starting again to climb, reaching a high peaking point by 2007. We all now know what happened since then. The market burst like a bubble: banks were giving mortgages to just about anybody who could breath, with no income or credit check loans. And the banks did this because they believed the market was going up forever.
So here we are again and back to the first question: Where is real estate going? The answer to this in part depends on what the average American believes, because we are all smart. We make our decisions based on what knowledge we have and our financial condition. If we think the market is going up, we will all go out and buy a house right now. If we think the market is going down, we will hold off because we don't want to lose. However, if we don't have a job and we lost our house because of the past mistakes of the banking industry which we call the sub-prime mess, we are stuck. So, therefore, demand will be low and prices won't go anywhere for the time being.
Judging from past history of economic cycles, I would say that the unemployment rate is one of the major predictors as to where the economy is going, and hence, the real estate market. When the current unemployment rate, about 10+% starts going down, it should follow that people will again be able to afford to purchase a house, and this demand will cause prices to rise again.
By Maury Jazzetti
The economy was recovering and unemployment in these years was good. Interest rates, although high in this period, about 12% (down from a high of 18% in 1982) for a fixed 30 year term mortgage was easy to get, as compared to today's strict standards. Then, in 1987, there was the stock market crash. October 19, 1987 is referred to as Black Monday. This was a world stock market crash and the DOW dived by 508 points in one day. Everybody believed that the market was bad, so people started to be concerned about real estate as an investment. Prices started to level and eventually fell. This slow period for real estate lasted from about the early 1990's and continued through the late 1990's. There was a Saving and Loan crises during this period where many small savings banks had either closed or were merged with more solvent banks.
During the period in the mid 1980's, the market for coops and condos also started to surge, as most apartment building owners had converted their rental units to coops. At some point in the middle 1990's, there was a glut of cooperative units and the price of units sold to consumers had plummeted to prices far less than what they paid. By early 2000, the market was again steady with the price of houses starting again to climb, reaching a high peaking point by 2007. We all now know what happened since then. The market burst like a bubble: banks were giving mortgages to just about anybody who could breath, with no income or credit check loans. And the banks did this because they believed the market was going up forever.
So here we are again and back to the first question: Where is real estate going? The answer to this in part depends on what the average American believes, because we are all smart. We make our decisions based on what knowledge we have and our financial condition. If we think the market is going up, we will all go out and buy a house right now. If we think the market is going down, we will hold off because we don't want to lose. However, if we don't have a job and we lost our house because of the past mistakes of the banking industry which we call the sub-prime mess, we are stuck. So, therefore, demand will be low and prices won't go anywhere for the time being.
Judging from past history of economic cycles, I would say that the unemployment rate is one of the major predictors as to where the economy is going, and hence, the real estate market. When the current unemployment rate, about 10+% starts going down, it should follow that people will again be able to afford to purchase a house, and this demand will cause prices to rise again.
By Maury Jazzetti
Maury Jazzetti has been in the real estate business for over twenty years and has bought, sold and managed various real properties. He is is also a licensed real estate broker in the State of New York. He has created a community real estate website which includes For Sale By Owner and For Sale By Broker sections. Homeowners may post their property for sale for free. There are no posting, photo, or any other fees to advertise properties. Visit http://betterlifestyles.com
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