Chip's Blog

Food for Thought - A Historical Perspective  

 

BY

Chip Maxfield
Maxfield Real Estate, Inc.

 

Just over two decades ago in the mid 1980's real estate began a meteoric climb.

 1985 through 1989 real estate values increased by 150%. 5 short years.

 1990 through 1996 real estate values dropped from 20% to 50%.                                             That's four years of decline and two years at the bottom or flat.

 1996 to 1998 saw prices rise to previous peak levels. Two years

 1999 to 2005 saw values more than double. Six years

 2006 to present values have declined.  3 and 1/2 year time frame                                                    waterfront 15%, residential 25%.

 2009 to 2011 prices will bottom and remain flat for two years.

 2011-12 we anticipate prices will rise.

 The time period going forward from today's date is modeled after the 1990's real estate market and as you can see the pattern between the two periods is remarkably similar. I can still remember how in the 90's we all expected things to turn around about 3 years before they actually did. This caused a lot of sellers to lose more value and more equity on their real estate as they failed to respond to the market as it was.

 

In the mid 1980's to mid 1990's period a huge number of Savings and Loans failed and many military bases were closed affecting the economy in many states. The economic news was bleak The stock market saw large movements both up and down. In October of 1987 Black Monday happened. "The Dow Jones Industrial Average (DJIA) dropped by 508 points to 1738.74 (22.61%).  The DJIA did not regain its August 25, 1987 closing high of 2,722 points until almost two years later."(Wikipedia). There were dire predictions about the health of the economy and some real doom sayers.  

 

I think that today's economy woes are more wide spread. We are in worse shape than the 1990's economy but I am still optimistic that things will eventually turn around and that the time tables between the two periods will continue to mirror each other.

 

Chip Maxfield

 May 5^th 2009

 

 

Update July 22, 2009

 The lower end of the market continues to sell at a reasonable pace while the upper end remains sluggish due to seller's unwillingness to recognize the economy for what it is relative to the value of their waterfront holdings. A few who have responded and lowered their price accordingly have met with success selling anywhere from 5% to 15% off peak sales prices.

 

The preceding 12 months (July 08 to July 09) the number of properties selling at 1 million and above was 33 homes. In the 12 months prior (July 07 to July 08)  the sales volume was 65. This is a reduction in homes sold of 50%. The total number of properties for sale in this million and up category is 184. If no new listings came on the market and sales remained level it would take 5.5 years to sell these homes. Waterfront sellers need to pay attention and get the full story from their agent. It could mean a great deal economically.

 

The Good News:  Buyers pay attention

 

1996 to 1998 saw the vast majority of the real estate market regain all of its losses with a return to the peak values of 1989. Commercial and condos lagged by a year or so as their losses were so deep. (As a foot note at the 1989 peak real estate values had climbed by as much as 150% over a five year period.)

 

1999 to 2005 saw a very strong market with annual increases in value in the 20% range.

 

All of this activity came on the back of one of our worst real estate markets ever. During the down period 1990 though to 1996 people were afraid their value would never go up. Well it did and it did it with a vengeance.

 

I personally purchased three properties in the 2003 to 2004 time frame. This was two to three years before the market began to rise again. We are currently in that same place as I was in when I made my move in the market. To this day those properties are all valued about 150% higher than what I paid for them even taking into account the downturn of the market.

 

Knowing the past is a good indicator of the future. As long as the number of people born exceeds the number of people who are dying and as long as conservation measures are being taken to preserve open lands, and as long as planning boards make it more difficult to create new housing there will always be a strong demand for housing. The rise in property values over time will always beat inflation.

 

Interest rates in the 90's were in the 6 to 5 % range much as they are today. Huge inventories allowed for favorable terms and negotiations. Large inventories also allowed for more choice. You cannot beat the current market for opportunity and choice.