Here is what I can recall from my experiences on the events that occur before, during and after a down turn.
Pre-down
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Employment Rate is a Great Indicator when we are just about to get into a downturn! Basically, when everyone is employed (Unemployment Rate falls to the bottom), there is only one way to go, UP. That's pretty much indicative to all pre-Recession indicators.
Construction Workers and Developments were in full swing with lots of work.
There also can be a hype to get into the Asset Class, but I am unsure if that occurs in all recessions. It's possible. I don't really believe that Real Estate is hyped up now. Maybe here on BP it is, but there are still a lot of people who don't want to buy RE because of the past Great Recession. If anything, the Stock Market looks very frothy to me. The DOW went from 6,000 to 22,500 from 2008 to now. Did Housing move up that much? NO. Just giving you an example so you can make your own comparison.
During this time, our property values generally were at their peak.
To put a number to it, let's just say it was $1 Million. That way I can help the readers understand how we thought of the property values in our specific location.
During the Downturn
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All levels of Government will lose money, especially Cities.
When Cities lose money, they start cutting back on services. The three services that they cut, or at least in the last recession, was:
1) Fire Department
2) Police Department
3) Teachers
4) Virtually All Construction was stopped. Permits, Ground Breaking and development all fell to virtually zero.
In the private sector, it's always the cheaper employees that go first. So low paid Restaurant staff, clerks, etc. Then it moves up the ladder.
Lots of non-essential activities dry up. So anything related to Art becomes vulnerable. A few of my Properties are in close location to an Art School and tenants who were Art Grads could not find ANY kind of Art related work. A lot just had to do other things like Dog Walking, Baby Sitting, etc.
When you cut these kinds of services, you can imagine what will happen to certain neighborhoods.
In NYC, richer, well supported neighborhoods were able to buy into private security to patrol the neighborhoods or at least lobby the City to provide more security. These neighborhoods also generally have good schools, but, more importantly for NYC, private schools continue to be supported.
Generally, since my properties are in these Class A neighborhoods, we did not see much of a dip in our Rentals. We did notice there was certainly an increase of people who lived in the fringed neighborhoods moving to safer locations. Crime picked up as the Police Services has to work a lot harder as their personel was cut. What really became a big problem was that NYC retired a lot of older, extremely experienced, higher paid Officers, but highered a lot of cheaper, lower paid, non-experienced rookies.
They just had to do it. The City lost a lot of money because of lost revenues in both Property Taxes, especially in Transfer Taxes as sales went down hugely, and the crash of the Stock Market.
Really, this was GROUND Zero for the Financial Crisis.
During this time, my Partners and I did feel the crisis, but more because we care about the financial well being of our current renters, especially those who are our long term tenants. We allowed a lot of the younger Renters to take on more roommates, did not raise their rents, and in some situations, lowered their rents to help, but it was not necessary for us to do so.
Continuing with an understanding of the property values, in the Pre-Recession peak, we used $1 Million as a value. During the Recession, there was just no way we could have sold it to anyone with a Mortgage until a few years later. I would say our property values dipped by around 20% at the most, but averaged a dip of 10%. So $900k would be the value I would place on it.
Post Recession
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In the post recession, Economic activities picked slowly.
Lots of different changes occurred to try to prevent the same situation from re-occuring.
Policy changes made affected the qualifications of buyers and basically stopped the demand in it's track. A lot of buyers, especially Investors, just couldn't buy without Stellar Credit and Income. So Housing Activities had just bottomed out.
As time passed and Buyers adjusted to the new Normal in Qualifications, Housing Development and economic activities slowly came back.
Within 5 years, opportunities abounded.
Obviously, good neighborhoods survived. All my properties were doing excellent.
If you missed the boat on cheap prices in 2009, you can make a killing in 2014. And OF COURSE I bought in 2014.
You could take advantage now that things were starting to become normal. Teachers, Police and Firemen were being rehired. Construction workers and the bottom of the ladder people were doing well.
Today, 8 or 9 years after the recession, the value of my protfolio blew past peaks.
Going back to the theme of my Portfolio value which was Pre-Recession at $1 Million, dipping to $800k/900k, it is valued somewhere around $2.5 Million CONSERVATIVELY.
There is an old saying that I think Investors need to at least understand... "The hardest part about making a $ Million is keeping a $ Million."
After you made your Million and keep your Million......... which implies that you had survived through a really difficult economic down turn (either nationally or in your personal life), you now understand how to make Millions more.
Sorry about the long posting!
