How did we get here?
I guess that is a good question. My opinion is that we run in cycles anyway and we are where we are today because of the cycles. We can do things to tinker with them and delay or accelerate the cycle but it’s coming and we need to be prepared.
We just got a report that we have been in a recession since December 2007. The news is reporting that little factoid from the report published on Monday from the National Bureau of Economic Research. What they don’t tell you is that since 1937 the longest recession was 16 months. If history proves out then we are either near or at the bottom and likely climbing our way out. Every time after one of these recessions we have enjoyed a long period of expansion. Average is about 5 years. In fact, I heard Warren Buffett say that we would be fine in 5 years. Not 5 months but that we will be fine. That is one side of the story you won’t hear elsewhere.
Second, we tinkered with this and violated some basic rules. We allowed people that were not qualified to buy a house get financing and because the prices kept going up due to the artificial expansion we used our houses like piggy banks. We did this largely because of the policy that the interest paid was tax deductible and we spend the money on things we did not need with money we did not have to impress people we did not know. That has stopped and we are paying the price right now.
In 1991 we extracted $71Billion in equity and while that sounds like a big number in 2005 it was $743Billion. Yes, 10 times what we took out in 1991. Most of that money was spend on consumer goods or to pay off debt on credit cards that were used to prop up a lifestyle that could not be justified.
Even with all of that, I want to leave you with this. 2008 is going to be the 7th or 8th best year ever in real estate. Counting total sales, we are going to have a good year. Next time I will dig into that more and tell you about some more GOOD news that you won’t hear elsewhere.
Thanks for listening,
Jerry W. Robertson