Is it a "V" or an "L"?
July 21, 2009
Yesterday I heard a commentator on Bloomberg TV interview a financial guru concerning the state of the economy. Of late, the stock market has been on the upside and the economists being quoted in the media have turned a bit more optimistic concerning our recovery from the current recession. The particular expert who was being interviewed was very optimistic and stated that he thought the recovery would be a "V" shaped, while the majority of economists have felt that the recovery would be "L" shaped. Most of the time these economists are speaking about the financial market recovery. Rarely are they discussing the shape of a real estate recovery.
A "V" shaped recovery is one in which the economy has sunk quickly and deeply over a short period of time (2-3 years), but the recovery to pre recession pricing is equally quick and over a short period of time. Hence the "V"; down sharply, up sharply.
An "L" shaped recovery is one in which the economy has sunk quickly and deeply over a short period of time (2-3 years), but the recovery is flat like the base of the letter "L" and takes a much longer period of time before prices recover to pre recession levels.
If the measuring stick for when real estate prices will attain par with their 2005-2006 levels is a "V" or an "L", my research of previous real estate down markets suggests that real estate usually recovers more like an "L". Actually I would suggest that the letter"U" is more representative of past downturns and upturns in the Inland Empire real estate marketplace. Thus prices reach a peak and then the down market takes over. At some point the down market
fades and prices remain pretty level for a period of time. Eventually prices begin their recovery and do recover. The typically time in the real estate market in the Redlands area that I have research, the time between the peak and the next peak is 10-12 years with the years in between reflecting the time to get to the base of the "U" and the time to recover to the upside of the "U".
No matter which letter proves correct, purchasing real estate now neems like a great opportunity!
In 2016, let me know!
Yesterday I heard a commentator on Bloomberg TV interview a financial guru concerning the state of the economy. Of late, the stock market has been on the upside and the economists being quoted in the media have turned a bit more optimistic concerning our recovery from the current recession. The particular expert who was being interviewed was very optimistic and stated that he thought the recovery would be a "V" shaped, while the majority of economists have felt that the recovery would be "L" shaped. Most of the time these economists are speaking about the financial market recovery. Rarely are they discussing the shape of a real estate recovery.
A "V" shaped recovery is one in which the economy has sunk quickly and deeply over a short period of time (2-3 years), but the recovery to pre recession pricing is equally quick and over a short period of time. Hence the "V"; down sharply, up sharply.
An "L" shaped recovery is one in which the economy has sunk quickly and deeply over a short period of time (2-3 years), but the recovery is flat like the base of the letter "L" and takes a much longer period of time before prices recover to pre recession levels.
If the measuring stick for when real estate prices will attain par with their 2005-2006 levels is a "V" or an "L", my research of previous real estate down markets suggests that real estate usually recovers more like an "L". Actually I would suggest that the letter"U" is more representative of past downturns and upturns in the Inland Empire real estate marketplace. Thus prices reach a peak and then the down market takes over. At some point the down market
fades and prices remain pretty level for a period of time. Eventually prices begin their recovery and do recover. The typically time in the real estate market in the Redlands area that I have research, the time between the peak and the next peak is 10-12 years with the years in between reflecting the time to get to the base of the "U" and the time to recover to the upside of the "U".
No matter which letter proves correct, purchasing real estate now neems like a great opportunity!
In 2016, let me know!
posted by shirley harry at 8:03 AM
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