The Long Cycle in Real Estate

Abstract

The experience of the 1985-1993 boom/bust in real estate has left industry players nervous about when it might happen again. This study examines the possible causes and the periodicity of such major real estate cycles. A search of the literature for return evidence from this century suggests that there was only one other period of negative total returns for national real estate—the late 1920s and early 1930s. The evidence suggests that both periods of negative returns were caused by excessive levels of new construction, induced by an unusual rise in NOI, which in turn was the result of an inflation spike in the general level of prices. Evidence from even earlier periods suggests a periodicity for such real estate boom/busts of some fifty to sixty years. Perhaps the caution of today's Federal Reserve Board about containing inflation means that we will not likely see another boom/bust period for real estate during the remainder of our careers.