"Conquer the Crash said to expect a 90% decline in average real estate values and to bide your time until your dream house became available at ten cents or less on the dollar. Today I received a flyer in the mail. It reads, 'Bank Foreclosed Property—Now Available at Pennies on the Dollar! All properties will be liquidated; first come, first choice.' One example is 6.2 acres of wooded mountain property with 700 feet of stream-front for $29,900, which is more than 75% off its previous asking price. A rather famous estate near where I live cost $50 million to build, and it is now listed for sale at $16.75 million. That’s 2/3 off, based on the asking price, which no one seems to be taking."
Elliott Wave Theorist, March 2011
When Conquer the Crash published in 2002, stocks were in a big downtrend. But for several years afterward, the investing public increasingly believed housing was a "sure" investment.
Most people who purchased a home in 2002 would not have imagined that the price they paid then would be unchanged ten years later. Alas, that's the way it turned out:
"Home prices in big metro areas have sunk to their lowest since 2002, the Standard & Poor's/Case-Shiller 20-city monthly index showed...Since the bubble burst in 2006, prices have fallen more than they did during the Great Depression."
Associated Press, (5/31)
Dow Jones Marketwatch (6/1) quotes an economist who said "[home] prices have now fallen by more than the 31% decline endured during the Great Depression."
The article also mentions that it took nineteen years for home prices to recover to their pre-Great Depression peak.
Real estate prices spiraled down precipitously during the early 1930s, including single family homes, hotels and rental properties.
Late in his life, renowned stock trader Gerald M. Loeb authored the classic book The Battle for Stock Market Profits (1971). These excerpts are from that book:
I lived in New York City in 1929. Hotels of all kinds were then going up on every side. They were in deep financial trouble almost overnight. I paid $12,000 a year rental for my two-bedroom-and-living-room suite in the Savoy Plaza. A year later I paid $4,000 a year, and this rate prevailed for about ten years.
During the 30s, occupancy rates in many cases dropped to under 50 percent. Hotel equities were wiped out . . . Commercial rentals also dropped severely. I know of cases where landlords practically waived the rent entirely just to keep the space occupied. The hope was that when times improved the building owner would have a rent-paying tenant again.
List prices were meaningless. During the 1933 bank holiday I paid $8 a day for a $40-a-day suite in an Atlantic City luxury hotel.
There were equities in co-op luxury apartments that sold for six figures in 1929 going for just $1 in the 1930s. The owners could not pay their taxes, mortgage interest, and maintenance.
Prices of homes declined sharply. There was a mortgage moratorium.
The point of recalling these scattered incidents is that there is never any such thing as a one-way street when it comes to economic trends.
In more recent decades, home prices were on a "one-way street" -- namely up.
But as we know, the trend in real estate prices did an abrupt U-turn. Now it's traveling swiftly in the opposite lane.
How long will this downward trend continue?
The larger economic and financial trends do suggest a time when another trend change could unfold.