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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: JF Quinnelly who wrote (17554)	2/20/2004 2:41:56 AM
From: Elroy Jetson	Respond to of 306849

Many studies have counted the total number of jobs lost in defense cut backs during that period. Orange County lost some jobs, but as a percentage of it's 2.3 million population at that time it was very small. The 35k direct job loss and 70k job loss in Los Angeles County amounted to less than 2% of total jobs. The real estate price decline began in 1985 in Texas and Colorado. By the time the decline reached California in late 1989 it just happened to coincide with defense job losses. A 2% decline, while significant, can in no way bring about the 50% price decline which ensued. Real estate prices had merely reached stratospheric levels relative to the rents which the properties could generate. It was simply a bubble based on irrational enthusiasm and excessive credit availability, much like today. If we wish to blame unrelated peripheral issues for the collapse of the real estate bubble we can find many other things which coincidentally occurred in 1989, other than 2% reductions in the employment base. Other events which coincided with the collapse of the real estate bubble include: _ George H.W. Bush became President in 1989 causing people to sell their homes in terror; _ Barry Manilow appeared on Johnny Carson driving real estate investors into fits of depression; _ the prime rate was cut twice from 11% to 10% and home owners sold in a panic before mortgage rates fell too far; _ the population of California reached 30 million and people left to avoid over-crowding; _ an earthquake measuring 7.1 hit the San Francisco Bay Area causing widespread destruction. Sometimes we want to see patterns that don't exist or a cause and effect relationship between things that don't realistically add up. The real estate bubble collapsed, as bubbles do. Just as the current real estate bubble will collapse. A tiny reduction in the employment base does not cause a 50% decline in home prices - there's just no rational connection.