But I do remember the last big real estate bust we experienced here in America.
It started in the late 1980s and reached its crescendo in 1991. Now I wasn’t a real estate investor back then, either, but I sure “felt” that real estate crash.
People owed so much more on their mortgages than they were worth that they simply walked away from their homes and let them go into foreclosure. The banks, specifically the Savings and Loans, were decimated by defaults to the tune of one trillion dollars. In fact, by any measure of financial soundness you want to use, virtually the entire US banking system was bankrupt!
Commercial real estate was also absolutely slaughtered. Commercial rents dropped by 50% or more in major cities including New York, a traditionally strong market regardless of national trends. Major real estate developers were crushed. Forget Donald Trump. The Reichmann brothers (they controlled Olympia and York) the world's largest holder of commercial real estate with a portfolio of some 20 billion dollars (back then, that was a lot of money!) went belly up.
The pervading sense of national dread was palpable.
I remember, smart people were actually asking if New York City would survive the real estate meltdown; would New York still be relevant, they would ask. In fact, in all my years of observing markets and human behavior, I have never seen a time when people were more depressed about their future than in 1991.
So this is the yardstick I use to measure our current real estate dilemma. As such, I do not see anywhere near the emotional devastation prevalent in 1991 here today in 2007. The sub prime credit woes seem to have hit the investment banks and finance companies the hardest. It appears that the real devastation has taken place in the mortgage-backed securities (bond) market. In fact, commercial real estate still appears to be fairly robust, and housing prices, while down, do not appear to have cratered.
The fact is, though, I’m an amateur when it comes to real estate, but I know that many of you who read this report are not. Many of you are real estate investors, developers, builders and contractors. You are in a much better position than I am to gauge the real market strength. So I want you to tell me, how are things out there, really?
How is commercial real estate really holding up?
How are residential real estate prices holding up?
What are your observations of this real estate bear market?
Is this the time to buy, sell or hold real estate, and why?
I’m not the expert on this subject, and I really want your help and your perspective. Your observations will not only help me but the thousands of other readers that are asking the exact same questions.
Chief Investment Officer
ETF Master Trader