The Past of Real Estate has come to Haunt the Present

It is an eerie situation. The past of real estate has come to haunt the present but few are aware of the ghost. There is very few data on a similar real estate crisis that took place in the 1920’s.

But hunting through the ruins of financial and real estate history Professor Goetzmann of Yale University ably assisted by Newman, a student from Yale, came upon some interesting finds. The past started to speak. 

From 1929 till the close of 1931 there was a boom in construction in New York. 128 building above 70 meters were finished in the city creating a record at that time. Today from 2007 to 2009 the number is 87 – it being the highest since the last three decades. 

To be noted is the fact that the record building activity continued for two years after the beginning of the Depression – similar to the cranes that were seen all around New York in 2008 at a time when the worst recession since World War II was on in full swing.

It could not have sprouted overnight because to build jumbo sized building plans are required. Once it gets going the best thing is to finish these even if the economic climate is hostile and there is little scope of leasing these out. 

Currently there are many in the banking sector together with some economists who are arguing that securitization with some alterations has to come back if the economy is to start running again. Their logic is that it makes investors and those having the ability to grant loans join hands. The banks just do not have the required capital for these loans.

Goetzmann and Newman opine that this same thing happened in the 1920s. The real estate bond companies “generally served simultaneously as originators, underwriters and distributors.

Performing these three functions proved incredibly lucrative in an optimistic real estate market. So long as investors were easy to locate, bond houses could collect substantial fees for these services without having to part with much, or any, of their own capital.”

It was the same with the corporations of Wall Street today as it was the mortgage lenders of yesterday. Lehman Brothers and Bear Stearns were the biggest in matter of origination of mortgages, underwriting and distribution.

The difference between yesterday and today is that the securities were used to construct buildings – edifices that are still standing for us today.

We suggest you to read about:

• The Past and Present of Real Estate Market Scenario
• New York Foreclosures
• Inflation follow-up
• Banks will continue with Risk taking Moves unless new Regulations are Imposed
• New York City attempts to save Housing threatened by Investors