What’s a “macro” analysis? Very simply, it’s an overall statewide, regional or nationwide analysis of the general real estate status quo. Though some see it as time you’ll never get back, it can and has saved my bacon time and again.
Here are a few examples from my own experience.
6 Examples of Macro Analyses, 1976-2014
The year I switched from owner occupied housing to the investment side of real estate brokerage.
If it was beyond analyzing what day of the week it was back then, I definitely wasn’t the guy for the job. However, my mentors — God bless everyone of ‘em — explained to me we were in for an indefinite period of inflation and therefore consistent appreciation of real estate values.
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Their Bottom Line Advice: Buy now. Exchange now. Let simmer. Rinse ‘n repeat. From ’76 through around October of ’79, I called ‘em the Amazing Kreskin Group (AKG). (For those who never saw Johnny Carson at work, The Amazing Kreskin had the answers to questions not yet asked. He was a seer.)
There were many who executed more than one tax deferred exchange in that four year period. It was as if Christmas of ’75 lasted that long. For San Diego, it wasn’t JUST inflation they began to see. Another powerful engine behind this prediction was the staggering number of families moving here. In fact, from around 1970 to 2013 the county’s population grew from 1.35 million to just under 3.35 million. Year in and year out, the county’s population increased, net/net by over 50,000 — and sometimes over 70,000.
Supply/Demand works every time it’s tried, right?
Though since 1976 my experience accumulated at the rate of roughly a couple years per year, I was still too rough around the edges to be called a bona fide expert. And that’s being kind, as Grandma would say.
Can’t remember exactly when, but sometime before summer, AKG told me they sensed the end was near. Double digit inflation can’t continue forever without payin’ the piper. They didn’t realize that invoice would come due in a matter of mere months.
Their Bottom Line Advice: Batten down the hatches. It could be a rough ride for a while. The tone of their voices didn’t convey sunshine and happiness. They told me I should be warning clients that taking cash out via refinance or secondary loans should be avoided like the plague. They also opined it could go on for as long as a couple years.
As grim as that sounded to a soon to be 28 year old, it turned out to have even longer legs than that. In fact, I didn’t transact a straight multi-unit purchase with conventional financing ’til December of 1983. It was an adjustable loan (no negative ammo) starting at 11.75%. Lookin’ back, I chuckle at the memory of my client being impressed that the interest rate began under 12%.
It (recession) lasted at least four years in “real estate time.”
I realize history defines that recession’s lifespan as 7/81 through 11/82. For real estate investors, that’s a joke. Goin’ into 1980 the owner occupied interest rates were already double digit. Investment rates are generally .5-1% higher. By 1981 FHA — for Heaven’s sake — was around 16.5%, and many conventional rates hit 18%! Unless I missed it, rates didn’t get down to remotely affordable ’til loooooong after the end of ’82.
In fact, in ’85 home loan rates had just dropped below 13%, at about 12.5%. That’s three years after the recession “ended.” It wasn’t ’til 1989 the rates went under 10.5%. It took ’til the early 1990s to arrive at interest rates for home buyers literally doubling today’s rates — and folks were in the streets doing the Happy Dance.
The Takeaway from That Era: Recessions aren’t ever truly over ’til the Real Estate Lady sings. The rest is whistlin’ past the graveyard.
AKG burst into uproarious laughter as I proudly told ‘em of my December closing. Turns out it was the timing that was so funny. They were about to tell me the stage seemed to be set for a sequel to the 1976-79 run of appreciation. Now, I was laughing, but more in relief than anything else.
Up to that point in my career, I’d not survived tougher times. In fact, from 1980 through 1983, I learned firsthand the truth of what AKG had earlier told me: “The backbone of the real estate brokerage industry is a working wife.” Turns out that was funny ’til the day it wasn’t.
Their Bottom Line Advice: Buy now. Exchange now. Simmer in the aromatic juices of appreciation. Rinse ‘n repeat. As in the mid to late ’70s cycle, many astute investors transacted more than one tax deferred exchange in the years beginning in 1984 and ending during 1990. Median investor IQs rose above 150 — or at least in their own minds. Net worths skyrocketed beyond that of original goals set long ago.
Down the road, the AKG called this type cycle — derision drippin’ from every word — The San Diego Birthright. They unblinkingly predicted there’d one day be a horrific ending to such a cycle. Sadly, only two of ‘em were still alive when that prophesy became reality in late 2006/early 2007.
Towards the end of 1989, AKG began to show signs of visible foreboding. Almost overnight I began callin’ them the Prophets of Doom. At first I told myself it was due to their general nature, which on good days didn’t scare the holy crap outta me. But they said the S&L problems wouldn’t be going away any time soon. They were divided as to the ultimate impact on the economy — and real estate in general.
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But they absolutely insisted it wouldn’t bode well for brokerage owners like me.
AKG told me in no …read more