The Recession is a Terrible Thing to Waste

14 Mar
March 14, 2009

This was the theme of a live national simulcast presentation I recently attended. The participants were all nationally recognized authorities who shared their collective expertise and opinions concerning the current state of real estate and the economy. The following summarizes the discussion.

We all know that the media has been reporting doom and gloom in the real estate markets. What is important to remember is that real estate is truly local. What is happening in California, Arizona and Florida does not accurately depict the conditions in the Washington, DC region. In fact, what happens in Prince William County does not necessarily reflect what is happening in Arlington. So while the nightly news is lamenting the bad economy, there’s no need to sink into a deep depression. In the past 100 years there have been 8 recessions and one “Great Depression”. However, each event was followed by a period of strong economic growth and prosperity. Last year we were outraged when gas prices soared above $4.00 per gallon. Does anyone remember 1973 when we waited in gas lines for hours only to find they ran out just before we got to the pump? In the last few years as house values declined consumers could no longer use their homes as ATM machines to tap into equity. Did we really believe that house values would continue to appreciate 20% year after year? Can anyone recall scenes from the 1930′s of people standing in food lines having lost their jobs and homes?

The point is, as bad as it feels now, it has been a lot worse, and it will certainly get better. As you look at the chart below, keep in mind the  Gross Domestic Product (GDP). The GDP is a snapshot of the true economic health of our economy. It shows the value of goods and services produced and includes consumer, investment, and government spending, plus the value of exports, minus the value of imports.

Years                    Key Indicators                        Stocks                           GDP

1929-1939          Unemployment 25%                 Dow down 89%              Down 11%
1973-1975         Inflation rate 21%                       Dow down 45%              Up 18%
1981-1982          Prime rate 18.87%                      Dow down 24%              Up 4%
1990-1991         653 failed banks & S&L’s           Dow down 21 %              Up 3%
2001-2002        Nasdaq down 78%                     Dow down 38%               Up 8%
2008                 $6.2 trillion market loss             Dow down 42%               Up 1%

With the exception of the depression era, during all other recessions the key financial indicators were negative but the GDP continued to grow showing that Americans still spent money purchasing goods and services leading to an upturn and recovery. So rather than complain about the economy and wait to see if it gets worse, take advantage of the best time in decades to purchase a home. First time homebuyers have an incredible opportunity. With affordable house prices, historically low interest rates, and an $8000 tax credit there has really never been a better time to buy a home. The tide will turn, inventory will shrink, prices and interest rates will rise. The tax credit is only good until the end of November. Don’t wait. Don’t let a great opportunity slip away.

1 reply
  1. Amit says:

    Charles, you are a gentleman and a scholar

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