Trying to use the last real estate cycle as your playbook could be problematic. Thru hitting the proper benchmarks in a real estate cycle you can create real wealth. You buy from pessimists and sell to optimists.

“Games are won by players who focus on the playing field—not by those whose eyes are glued to the scoreboard. If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so.” — Warren Buffett, billionaire investor

For the first 144 years of real estate enclosure in the U.S., land sales and/or real estate construction peaked almost consistently, every 18 years,” Anderson writes. “The world’s worst downturns are always preceded by land speculation (the chasing of the economic rent) fueled by misguided credit creation courtesy of the banks.

2002 thru 2004 (mid 2004) was a demand driven boom. That diverged into a mania of historical proportions. The leverage of late 2004 thru 2006 is what create a surge in pricing and the accompanying correction. For every action there is an equal and opposite reaction.

What is a mania? An economic bubble or asset bubble (sometimes also referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania, or a balloon) is trade in an asset at a price or price range that strongly exceeds the asset’s intrinsic value.It could also be described as a situation in which asset prices appear to be based on implausible or inconsistent views about the future. Asset bubbles date back as far as the 1600s and are now widely regarded as a recurrent feature of modern economic history.Historically, the Dutch Golden Age’s Tulipomania (in the mid-1630s) is often considered the first recorded economic bubble.

History shows unsustainable debt levels create corrections.

So how is this cycle different?

Well the money supply has changed a little (that is the understatement of the year).

Real Estate Cycle

Let’s look at total consumer debt:

Real Estate Cycle

Let’s look at the growth of commercial loan debt:

Real Estate Cycle

Let’s look at debt on Multifamily:

Real Estate Cycle

Let’s look at car loan debt:

Real Estate Cycle

How about residential debt levels?

Real Estate Cycle

The only debt level that has not pierced the pre-2008 levels in residential debt.

What does this mean?

 

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