18 Year Real Estate Cycles - Next Bust 2024?

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18 Year Real Estate Cycles - Next Bust 2024?

Johnson H.Pro Member
Investor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes

I have been researching real estate cycles and found real estate economist Homer Hoyt theory of 18 year real estate cycle in the 1930's. In the early 90's economist Fred E. Foldvary predicted the real estate crash in 2006 using this same methodology. 

"The chart above, was used by Fred E. Foldvary - in his now famous report - to predict the recession of 2008. If you look again at the chart, you will notice that the 2008 prediction was right in line with the 18 year cycle - which Foldvary uses as the basis for his report. In his report, Foldvary even explains why Hoyt's 18-year cycle theory diverged so drastically between 1925 and 1973. Foldvary points out that the cycle does not always function on a precise 18 year schedule, but - baring catastrophic events like a world war - for the most part the cycle should be right around 18 years. I'm not going to go in depth into all the various factors discussed by Foldvary in his report, but if you want to know more, I encourage you to read Foldvary's full 40 page brief."

http://www.nuwireinvestor.com/articles/the-real-estate-cycle-where-are-we-now-59319.aspx

http://www.cato.org/publications/commentary/great-18year-real-estate-cycle

Based on this information, it seems that the next top of the cycle will be in 2024 pending any wars or a large scale disasters. I know 10 years away seems like a long time from now but reading over the data and Fred E. Foldvary report, it seems to all make sense. 

BP Nation, what are your thoughts on this theory?

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Ned CareyPro Member
Moderator
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
11y
Originally posted by @Johnson H.:

@Ned Carey  - I totally agree with you, it may not be 18 years. I want to figure out the best metrics to track for the next bust so that I don't get caught up with it.

 Here is the number one metric that has been foolproof. It was told by humorist and Author Dave Barry. Dave is a funny man but certainly not the guy you would look to for financial advice. However the following has proven to be the best indicator I have ever seen.  While it was written about the stock market it applies perfectly to the real estate market too. 

You may laugh but when the average person who wouldn't normally have any interest in real estate (or any investment) starts talking about it, the market is overheated.

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  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    11y

    @Johnson H. 

    try baby boomers. Look at the birth rate chart. We can take that chart and overlay it over our real estate market charts here in SW Florida and it becomes evident how important birth rate cycles are to RE.

    1Reply
  • J. MartinPro Member
    Rental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
    11y
    Originally posted by @Ezra Nugroho:

    @J Martin,

    Are you suggesting that there is a BP-induced micro-bubble ? :)

     I'm not throwing out allegations of CAUSATION - just CORRELATION. In other words, I don't necessarily think BP is causing the rush into RE, but the number rushing in to BP with no experience could be an indicator. There is probably some feedback loop there though..

    BP is a lightning rod for all the inexperienced people who want to make money in RE. Also, their wide-spread reach with the podcasts isn't exactly cooling the speculative flame of RE..

    2Reply
  • Account Closed
    Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
    11y

    @James Park,

    It's a little early to state my charting theory and why I believe we will see a 20% - 25% correction.  It makes sense why we have a short-term bounce when the S&P hit 1,820.  That was exactly a 10% correction, and some people believed the correction is over.   

    I beg to differ since the general consensus is still not as bearish as I would like to see. Today is considered the 1st up day for the Nasdaq and S&P.  Unless we have a follow through day in the market next week or two, which means 1 or more of the 3 indices going up more than 1.7% with volume higher than the previous trading day.  Otherwise, every bounce is an opportunity to sell IMO.  If there is a follow through day, I will buy back in with a stop loss below today's low.  This is one man's opinion and technical analysis mumbo jumbo so please don't act on it.

    If there is no follow through in the next 2 week, the market will resume to the downside.  I believe the market has a high probability of dropping to 1,5XX, which happens to be 38.2% Fibonacci retracement.  This 1,5XX number coincidentally matches with my correction belief.  

    In general, a correction of this magnitude will last for about 3 to 4 months.  The top of the market was on 9/16.  Therefore, I believe the correction will be over by the end of this year or mid Jan 2015.  If my theory turned out to be correct, I would be more than happy to share with you how I arrived my conclusion.  To simply put, history tends to repeat itself.  We'll see how it all shakes out.

    Good luck to all.

    1Reply
  • James Park
    Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes
    11y

    @Minh Le

    As a young investor, I would always try to listen to CNBC and see what other hedge fund managers had to say about the future of the market because I always thought they were smarter than I was and their investing knowledge was superior than mine. Why else would they be speaking on TV? 

    I would consistently search for the latest comment from John Taylor, the largest hedge FX fund manager and founder of FX Concepts LLC. He had at one point $14 billion dollars under management. Sometimes, I would disagree with him about his forecast and over time I would find out that his forecasts on certain currency markets was wrong, while my own research and theory became a reality. FX Concepts LLC later filed for bankruptcy.

    Today, I no longer search for what other hedge fund managers have to say or what Peter Schiff at Euro Pacific Capital has to say. I rely in my own research and listen to my own inner voice when investing and managing my own equities portfolio.

    We are now 15 years into the 18 year bear market cycle. You mentioned that history tends to repeat itself and I agree with your statement. Since the inception of the DOW Jones from 1897, the cycles have consistently shifted every 18 years. Unless I see a break in this cycle shift, I will continue to believe in the 18 year stock market cycle.   

    5Reply
  • David Krulac
    Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
    11y

    @Johnson H. 

    I agree strongly with @Ned Carey  

    All real estate is local.

    There is not a uniform national real estate market.

    Some places are experiencing a boom now, some not, some haven't seen a boom this century.

    And while interest rates are at historic lows, which should persuade people to load up on the cheap debt before the other shoe falls, the banks stinging from the crash and government regulations have made the qualifications much more difficult.  No docs, and stated income mortgages were ludicrous, but the pendulum has swung the other way with the "independent" appraisal board (owned by the banks) stiffer bank regulations, SAFE Act and Dodd Frank all making a recovery all that more difficult.

    News stories touting this and that national real estate trend, seldom actually tout a national trend only a local one. (is that tweetable?)

    1Reply
  • Aroldo Villarreal
    Specialist · San Antonio, TX · Member since 2014 · 122 posts · 11 votes
    11y

    Sorry for this newbie question, but I'm new to this and totally lost. What does this mean for investors? Does it mean that we should wait till 2024 for us to find good deals? Does it mean that good deals will be scarce? I just started investing this year and would hate to know that it wasn't a great time to start investing! Thanks for your patience.

    1Reply
  • David Krulac
    Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
    11y

    @Aroldo Villarreal 

    I have been buying on average a property a month for decades.  I say buy real estate and wait.

    You may say you'll wait to buy real estate.

    1Reply
  • Johnson H.Pro Member
    OP
    Investor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes
    11y
    Originally posted by @David Krulac:

    @Johnson H. 

    I agree strongly with @Ned Carey  

    All real estate is local.

    There is not a uniform national real estate market.

    Some places are experiencing a boom now, some not, some haven't seen a boom this century.

    And while interest rates are at historic lows, which should persuade people to load up on the cheap debt before the other shoe falls, the banks stinging from the crash and government regulations have made the qualifications much more difficult.  No docs, and stated income mortgages were ludicrous, but the pendulum has swung the other way with the "independent" appraisal board (owned by the banks) stiffer bank regulations, SAFE Act and Dodd Frank all making a recovery all that more difficult.

    News stories touting this and that national real estate trend, seldom actually tout a national trend only a local one. (is that tweetable?)

    I agree that real estate is local. However, I wouldn't ignore broader economic trends either, especially for larger metros that tend to correlate to these economic trends. If the area is isolated and isn't affected by US economic tends, then by all means focus on what matters. In addition, if a property has low leverage, cash flows well and is in a desirable neighborhood, it should have no problem weathering out any financial crisis.

    I work as a banking regulator and I can generally say, banks want to make loans but can't find enough qualified borrowers to do so. Those who do qualify, competition is high among banks to take on the business. Even the big banks have been catering to smaller investors these days as there is not enough business to tackle on the access liquidity with their growing deposit base. If you know what you're doing, are qualified, and have the financial banking to do so, it is a great time to be borrowing money.

    2Reply
  • Johnson H.Pro Member
    OP
    Investor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes
    11y
    Originally posted by @Aroldo Villarreal:

    Sorry for this newbie question, but I'm new to this and totally lost. What does this mean for investors? Does it mean that we should wait till 2024 for us to find good deals? Does it mean that good deals will be scarce? I just started investing this year and would hate to know that it wasn't a great time to start investing! Thanks for your patience.

     I wouldn't worry Aroldo. Generally speaking, Texas real estate was not highly affected during the downturn as other areas. It is a slow appreciation state. Just buy great cash flowing properties in desirable areas and you should have no problems becoming a successful investor. 

    1Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    11y
    Originally posted by @Johnson H.:

    I work as a banking regulator and I can generally say, banks want to make loans but can't find enough qualified borrowers to do so. 

     What a bunch of baloney. There are lots of qualified borrowers that can't get loans because of the knee jerk over-reaction to the market. Banking regulations and the banks own standards are tougher than the long term average,  making loans  tough to get right now. 

    Wow that is even funnier than the last comment.

    The ultimate irony is the government (or psudo-govenrment via the Fed Reserve) are pushing an easy money policy to the banks, they are at the same time enforcing tough lending regulations. Essentially saying here is free money to loan, but you are not allowed to make loans.

    2Reply
  • Johnson H.Pro Member
    OP
    Investor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes
    11y
    Originally posted by @Ned Carey:
    Originally posted by @Johnson H.:

    I work as a banking regulator and I can generally say, banks want to make loans but can't find enough qualified borrowers to do so. 

     What a bunch of baloney. There are lots of qualified borrowers that can't get loans because of the knee jerk over-reaction to the market. Banking regulations and the banks own standards are tougher than the long term average,  making loans  tough to get right now. 

    Wow that is even funnier than the last comment.

    The ultimate irony is the government (or psudo-govenrment via the Fed Reserve) are pushing an easy money policy to the banks, they are at the same time enforcing tough lending regulations. Essentially saying here is free money to loan, but you are not allowed to make loans.

    Ned, you are certainly entitled to your opinion and what you and your network have experienced in getting a loan. I am only stating what I've seen and heard in my field of work. 

    Just to clarify, I am speaking more so to commercial portfolio loans, not to residential Fannie/Freddie type loans.

    1Reply
  • James Park
    Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes
    11y
    0Reply
  • Pat L.
    Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
    11y
    Originally posted by @Johnson H.:
    Originally posted by @Ned Carey:

    must be a local thing like REI....but I agree with Ned Carey

    we hang out with several active REI well financed professionals & they attest to the ongoing difficulty in securing Commercial loans so (like us) go in CASH & take the leverage hit.

    The last Loan Officer that I allowed to waste 10 minutes of my time was just out of a Political Science degree (minor in Econ.) BUT with 6 months of hands on 'advanced Bank finance training'.

    0Reply
  • Johnson H.Pro Member
    OP
    Investor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes
    11y
    Originally posted by @Pat L.:
    Originally posted by @Johnson H.:
    Originally posted by @Ned Carey:

    must be a local thing like REI....but I agree with Ned Carey

    we hang out with several active REI well financed professionals & they attest to the ongoing difficulty in securing Commercial loans so (like us) go in CASH & take the leverage hit.

    The last Loan Officer that I allowed to waste 10 minutes of my time was just out of a Political Science degree (minor in Econ.) BUT with 6 months of hands on 'advanced Bank finance training'.

     Thanks for the data point Pat. I decided to look up the data on lending and the Fed provides some great data here:

    http://www.federalreserve.gov/releases/h8/current/

    One line one, bank credit has grown steadily since 2011 with 2014 being a big year for lending. Commercial and industrial loans on line 10 have grown at a very fast clip while real estate loans on line 11 growth have declined every year from 2009-2013 until this year. This is probably what you Pat and Ned are seeing. What it seems like is that a qualified borrower before the crash may not be a qualified borrower now and/or banks have been more focused on other types of lending besides RE lending. The information that I stated above is direct from bankers. I've been at my job for six years, starting in 2009. I wish I had decades of experience and can compare and contrast the banking sector before the crash but I don't.  Thanks Ned and Pat for your insight. I am going to find some metrics that I can monitor on a regular basis on the growth of lending.

    1Reply
  • Kendall T.
    Real Estate Investor · Fort Pierce, FL · Member since 2014 · 132 posts · 57 votes
    11y

    Real Estate prices will fall sharply when interest rates rise.  People buy a home on what the monthly payment will be and not the total price.  Home prices will have to fall for there to be buyers, it will be a great time for those savvy investors who have cash, and can swoop in and buy for cheap.

    0Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    11y
    Originally posted by @Johnson H.:

     Thanks for the data point Pat. I decided to look up the data on lending and the Fed provides some great data here:

    http://www.federalreserve.gov/releases/h8/current/

    One line one, bank credit has grown steadily since 2011 with 2014 being a big year for lending. Commercial and industrial loans on line 10 have grown at a very fast clip while real estate loans on line 11 growth have declined every year from 2009-2013 until this year. This is probably what you Pat and Ned are seeing. What it seems like is that a qualified borrower before the crash may not be a qualified borrower now and/or banks have been more focused on other types of lending besides RE lending. The information that I stated above is direct from bankers. I've been at my job for six years, starting in 2009. I wish I had decades of experience and can compare and contrast the banking sector before the crash but I don't.  Thanks Ned and Pat for your insight. I am going to find some metrics that I can monitor on a regular basis on the growth of lending.

     Johnson, firstly let me say my previous comments were not meant as a slight against you personally.  

    This is a matter of perspective, and semantics to some degree. What has changed is the lenders and regulators view of "who is qualified" Both were pushing loans to people who may have technically "qualified" under loose underwriting, they by no means met long term standards for underwriting. Today the opposite is happening, people and deals that would normally qualify do not. This is not because they are a greater credit risk it is becuase of tougher underwriting standards and regulations.

    One of the smartest bankers I know who really gets and understands real estate, worked for a small community bank. He said in the boom regulators told him,"yes we know you are at the limit of real estate loans you are allowed to make but keep making them real estate loans are good for the economy" After the crash the same regulators were telling him "yes we know you are well within the amount of real estate loans you can make but don't make any more real estate loans, they are risky."  This clearly shows those regulators did not understand market cycles and risk.

    Another example; a friend who does residential loans to homeowners said he was really busy. So I asked low rates are causing lots of purchases and refi's. He said "No I am doing fewer loans right now but it is more work to get each loan done and it is a real struggle to get a loan through at all."

    So, yes I was referring to real estate loans.

    0Reply
  • Louis Leone
    Real Estate Investor · New York City, NY · Member since 2014 · 121 posts · 47 votes
    11y

    Markets are primarily local and although some external circumstance may effect real estate across the board (financial crisis, etc), it's pretty hard to predict when one of the "external" circumstances are going to hit.  Local real estate markets, on the other hand, are a bit more manageable since you can see if there is population growth, job growth, inventory going up, vacancy rates, etc. so they become a lot easier to determine what part of the cycle you're in.

    As for the stock market, there was a very long term study done by Javier Estrada, a finance professor.  He looked at nearly a century's worth of day-to-day moves on Wall Street and 14 other stock markets around the world, from England to Japan to Australia.

    He found that if you missed the 10 best days you missed out on the majority of the gains. He also found that if you managed to be out of the market on the 10 worst days, your profits went through the roof.

    Over an investing period of about 40 years, he calculated, missing the 10 best days would have cost you about half your capital gains. But successfully avoiding the 10 worst days would have had an even bigger positive impact on your portfolio. Someone who avoided the 10 biggest slumps would have ended up with two and a half times the capital gains of someone who simply stayed in all the time.

    In other words, it's something of a wash. The cost of being in the market just before a crash are at least as great as being out of the market just before a big jump and may be greater.

    The conclusion is that a small number of big days, in both directions, account for most of the stock market's price performance. Trying to catch the 10 biggest jumps, or avoid the 10 big tumbles, is almost certainly a fool's errand. 

    1Reply
  • Roc P.
    Philly Area, PA · Member since 2008 · 297 posts · 27 votes
    11y
    Great stuff @Ned Carey, when the herd is moving in one direction move the opposite! I think there are still deals out there, regardless investors are always buying and selling the market will dictate on what option.

    Also I'm not an economist by any means, but I feel there will be a double dip in the economy, as someone stated before things are stagnate right now.  Also the banks are holding on to a lot of inventory right now what do you think will happen if the all those "shadow inventory" properties get unloaded at the same time.

    Food for thought. Good luck Roc

    Originally posted by @Ned Carey:
    Originally posted by @Johnson H.:

    @Ned Carey  - I totally agree with you, it may not be 18 years. I want to figure out the best metrics to track for the next bust so that I don't get caught up with it.

     Here is the number one metric that has been foolproof. It was told by humorist and Author Dave Barry. Dave is a funny man but certainly not the guy you would look to for financial advice. However the following has proven to be the best indicator I have ever seen.  While it was written about the stock market it applies perfectly to the real estate market too. 

    You may laugh but when the average person who wouldn't normally have any interest in real estate (or any investment) starts talking about it, the market is overheated.

    0Reply
  • Ken A.
    Investor · Lake, FL · Member since 2015 · 121 posts · 28 votes
    11y

    Everyone will be shocked at the much higher prices by 2022-2024. Gains will be higher in the better areas. What can actually drag the “gains” are the stagnant areas that will never go up. Don’t invest there. The Biggest points for MUCH higher prices (since 2012) are

    1. Too much demand chasing too little “retail” ready supply (Hello Economics 101). 2. Interest rates around 4%. Are you kidding me – Have you looked at the last 50-60 years-that is way too low and makes it much more affordable. 3. GREED – This will push Better Real Estate much higher – IT NEVER FAILS. There is way way way too much CASH on the sidelines – THEY ALWAYS chase higher yields.

    I don’t know what #3 above will exactly look like. It could be Crazy Investor Loans – giving loans on investment Real Estate packaged by Wall Street (think about the Stupid Loans they gave to Home Owners – So why not Stupid Loans to Investors eventually – just a thought.

    Watch how the FED always mentions Housing Prices, etc. The Gov’t will probably want to find a way to get banks, etc. to make loans. The Government actually LOVES INFLATION. Don’t be fooled. They (gov’t) can then pay off their debt with cheaper money.

    I’ll be selling pretty much everything in 2022-2024 as GREED BUBBLE inflates.

    I’m still buying $30K homes with $700-$800 rents. That’s my niche. These homes used to sell for $100K+ during bubble. History may not repeat, but it will probably Rhyme.

    6Reply
  • Greg Barbre
    Investor · Downers Grove, IL · Member since 2015 · 28 posts · 8 votes
    8y

    Any new thoughts on this?   2024 or sooner

    0Reply
  • Jeffrey Holst
    Investor · Chattanooga, TN · Member since 2016 · 676 posts · 543 votes
    7y

    This thread is interesting given that four years ago people were taking money off the table.  I still feel like 2022-2024 feels right.  I dont know when forsure the correction will take place but I am not running away either. 

    0Reply
  • Kevin Meyer
    Real Estate Agent · San Diego · Member since 2020 · 7 posts · 4 votes
    5y

    I'm going to bring this thread back to life in 2021. Interesting to read the comments from 6 years ago. Now that we are closer the 2024, what are the indicators that people believe a recession is coming?

    0Reply
  • David Haan
    Member since 2023 · 3 posts · 3 votes
    2y

    Bump... any minute now?

    0Reply
  • Pat L.
    Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
    2y

    interesting revival of an old post. 

    We are beyond being concerned about a potential recession, other than that it may offer the potential for another buying spree.

    During the early 2000-2010 RE debacle a family member would send us weekly doom & gloom emails confirming his 'internet fueled conviction' that my wife & I would go bankrupt during the impending crash of the late 2000's. In fact he insisted on sitting down with us (a grueling 2 hrs), to review what we have achieved & then sent us a 4 page dissertation on everything we have been doing wrong for 35+ years, even though everything we owned was & is free & clear & I had retired in 1998. He also reminded us that he meets with & confers with much smarter investors than ourselves.

    Being contrarian we just kept buying & buying (CASH only) & now that prices are 80-200% *** higher (& we are aging), we are unloading, but not before enjoying years of high double digit ROI's just on rents. Then as we sell we often hold the notes (@12%+), we have done this for 30+ years. Admittedly we have had 2 foreclosures & several DILO's to extricate the properties & then did aa 'rinse & resell' for usually 2-3x our overall cost & again held the notes. In fact we have one investor friend & his 3 kids paying us 12% on quite a few properties for over 15 years (an RE annuity). He still buys anything we want to unload, BUT he has also made a lot of money & it allowed him to retire at 50 & is forever grateful as his health has declined since then.

    Meanwhile our skeptical 68 yr old family member, now in very poor health, is still working trying to afford retirement & recently took out a large adjustable rate HELOC to live on & maintain an image. Over the years his wife & kids have secretly invested their money with us & appreciate their double digit returns.

    *** In deference to the latest NYS vs Trump RE case, our property value evaluations are purely subjective, yet have been confirmed by sales of same !!! 

    1Reply
  • Mykhailo Strelchenko
    New to Real Estate · Long Island, NY · Member since 2023 · 5 posts · 5 votes
    2y

    Interesting thread.

    I think the author of the original post almost predicted the peak in the current Real Estate and Economic cycle. However, as of right now 10.05.2023 we still have a couple of years of massive speculation and credit creation left before reaching the peak in land prices, which according to Phill J Anderson should come in around 2025/2026. After the peak in real estate prices, stock markets usually continue rising for 12-24 months before reversing. Then an unprecedented crisis ensues. It takes governments about 4 years to sort out the results of reckless mortgage landings. And a new cycle begins…

    If anyone is interested in Real Estate and Economic cycles The Secret Wealth Advantage by Akhil Patel is a nice place to start.

    0Reply
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