80's Boom-Bust

The spitting image of 2005-present is similar.


There is a buzz in the real estate community that prices may be shoring up, rates are holding low, and job security and consumer confidence is on the verge of steadily increasing. We are expecting to see 2012 as the final year of price decreases and only by as little as 3%. Our outlook is then positive going into 2013 that a steady, slow appreciation will begin to take effect, somewhere in the 1%-2% range.


So the questions is, has anything like this ever happened before? Is this the normal cycle that achieves a double in real estate every 15 years? Below is an excerpt from a website http://www.rntl.net/history_of_a_housing_bubble.htm. It's a documented account of the last housing bubble.


"Below you will find a chronological listing of selected Los Angeles Times articles originally published between the years of 1985 and 1997 (inclusive) culled from their archives. The similarity among headlines from then and now is quite informative.


1985-1986: Housing is booming, inventory is low.

1987: Housing still booming, prices increasing, inventories low.


1988: People start to question the boom. Realtors assure us the boom will continue. Houses aren't like stocks afterall.

1989: Prices are very expensive; affordability an issue. Sales slow and prices drop. Mention of risky loan types.


1990: Prices take a serious plunge. One article claims that housing booms are a bad thing and we should hope prices stay low. Increasing mortgage rates are blamed for the bust. The word "recession" is mentioned. Gloom and doom.


1991: A "dead cat bounce"? Some folks wondering if the bust has bottomed out or not. Sales are abysmal (e.g., -42%). Other parts of the country showing some signs of recovery.


1992: No one is buying; housing is an investment that no one will touch. Desperate political efforts being made to encourage house buying. Rock bottom prices and lower mortgage rates encourage some purchasing. The year ends with some buying. Another "dead cat bounce"? It's not clear.

1993: It's definitely a buyer's market. Some people are saddened by the fact that current prices are 50% of what they were in the 1980's. The housing bust in Southern California is clearly negatively impacting the California economy and the national economy at large. Sellers are desperate to sell (and some people taking extreme measures like putting huge "for sale" signs on their lawns for passing planes to see). Folks who waited out the boom to buy at the bottom are being handsomely rewarded for their patience. Proof-positive of the contrarian investing style -- be greedy when everyone is fearful and fearful when everyone is greedy. The "slump" may be ending.

1994: Housing begins its comeback. People who had the intelligence to wait for the bottom are buying now at great values. Even rising mortgage rates are not shaking the recovery.

1995: Some parts are recovering others are not. People with "negative equity" are in despair.


1996: A tentative recovery is still in the making.

1997: Finally, housing has recovered


I don't know about you, but these dates seem to coincide pretty specifically with 2005 to the present.


If this is any sign of what's to come, the real recovery should start in 2014 and continue into 2017. Perhaps this is a simplistic view, but history does tend to repeat itself.