October 5, 2019
Recently a number of investors have communicated concern over the direction of the economy. The media has been a buzz about trade wars and the stock market has seen large drops. They also stated the belief that real estate is volatile. When I asked why, they all pointed to the sub prime mortgage boom and bust from the last recession. Makes sense being so recent, however my understanding has always been that real estate is typically very stable, even with the economy and stock market roller coaster rides. So I dug into some historical real estate values.
Summary of Findings:
Stable – US Real Estate as a whole is very stable, the exception was the subprime boom that peaked in 2005
More Volatile – Typically Coastal and big markets have more peaks and valleys
Most Stable – Indianapolis is the #1 most stable market, even during the subprime boom it peaked at 147K and dropped only 7% to 137K at the bottom 7 years later in 2012
If you look at the 3 graphs below, you can see in the 1st graph for US has a slow, steady climb. You can almost draw a straight line from start to finish without too much deviation above or below. The main exception is the huge boom around 2005 that came back down and resumed the climb almost right where it left off.
The 2nd graph shows Los Angeles, a coastal market that has peaks and valleys. When drawing a straight line from the start to finish, it often goes quite a bit above and below the line. This is typical of many of the big markets and coastal markets.
The 3rd graph shows Indianapolis, ranked the #1 Most Stable Market you can see it did not have a huge peak or valley and is incredibly close to a straight line. Even during the sub prime boom and bust, Indianapolis went from around 147,000 in 2005 at the top to 137,000 in 2012 at the bottom. Indianapolis does not see these crazy peaks that should not be reached, then plummet. It only went down 7% over a 7 year period from 2005 to 2012 while many coastal markets dropped in half.
United States: Pretty consistent trend upwards with exception to the subprime boom then picked right back up on a similar upward trend.
Los Angeles: Coastal and big markets are typically more volatile
Indianapolis: Ranked Most Stable Market. Only 7% dip from 147K peak in 2005 to 137K 7 years later
Stability is one of the reasons I picked Indianapolis. I could go on and on about Why Indianapolis, such as the #1 Job Growth and Population Growth in Midwest. Next, I will be writing about how I have navigated and built my model in such a Stable market.