hoagland

The Real Estate Cycle According to Henry Hoagland

"Distinctive Real Estate Cycles
There is some evidence to support the claim that real estate activities may be a major cause of general business conditions rather than their effect. For example, during the First World War private building was greatly curtailed. With the close of the war the backlog of demand resulted in a prolonged active market that produced sharp increases in prices and a great increase in the production of both urban land and its improvements. This market spent its force only after it had overreached itself and created a supply greater than the demand would absorb. Whenever the buying public shows a preference for real estate investment, the resulting active real estate market may be said to be a cause of prosperity rather than its effect. On the other hand, whenever investment interest deserts real estate, whether to show preference to an alternative outlet for funds or to go into hiding, the resulting dull real estate market is said to be affected by the slowing down of general business. In other words, real estate markets are both cause and effect of general business conditions." (page 208)

"Cyclical Growth of Developments
Both parasitical and self-contained development projects are subject to cyclical periods of growth. Such areas are opened for sale at times when people are prosperous and optimistic. City life palls upon many people. As soon as they feel able to do so, some of them will take advantage of an opportunity to move into the suburbs. Much of our suburban growth to date reflects the increase in size of our city population. As a city grows it must push outward and absorb adjacent agricultural land. But even if the predictions of a slowing down of city growth materialize, the suburban areas will undoubtedly continue to grow at the expense of the older and more congested areas whenever city people feel able to move into the suburbs.

The success of development projects is gauged by the forecasting abilities of their promoters. If the promoter of a parasitical area makes a wrong guess and attempts a sales campaign when people are not in the mood to buy his wares, his whole project may turn sour and it may take years to revive interest in it. The promoter of a self-contained project has a continuous job which assumes a variety of activities. When people are optimistic his time for pushing sales has arrived. In the intervals between good seasons, he must try to consolidate his gains, plug the holes left by defaulted contracts, and prepare for the next good season. If he overextends his operations or misses his guess about the future, he may lose all that he has gained; and , in addition, he may find that his future opportunities pass into the hands of his successor.

Perhaps more than any other kind of real estate, vacant land is subject to both seasonal and cyclical influences. Community need for new home and business sites are seldom studied. The number of lots made available is determined by the number that the promoters hope to sell. A successful promoter will trim his sales program to the seasons, the business cycle, and even to changing weather conditions. In general, spring and fall are his best seasons. Summer and winter witness a definite decline in interest in lot purchases. Disagreeable weather recommends office work rather than risking the loss of a sale by showing lots. The cyclical changes in lot-sale volume are so marked that it almost seems that the words "boom" and "depression" were made to fit this business alone." (page 337-338).

Chapter XXXII: The Real Estate Cycle

Hoagland concludes his 667 page book with a culminating chapter on the cyle.
His desription is remarkably similar to the cycle described by Hoyt in Chicago.

the cycle
begins
An increase in demand for real estate services first absorbs existing vacancies.
Increased employment means increased savings,
a part of which is made available to the purchasers of real estate
in the form of more liberal mortgages.
By this time prices have increased enough to provide enticing incomes to real estate owners.
This invites the construction of more units.

the
boom
The boom is started.
Eventually the new supply first catches up with the demand
and then continues to increase until a surplus is created.

too much
construction
The development of this surplus is at first not apparent
as long as employment is at a high level.
When employment recedes even slightly the surplus of real estate decrease,
and vacancies begin to take their toll.
Too late to apply the brakes of caution,
construction halts until it almost comes to a stop.

the
bust
The long discouraging period of waiting for better times
and hoping for recovery of lost real estate values has begun.
Foreclosures succeed each other in discouraging regularity.
The downswing of the cycle feeds upon its own misfortunes.

the cycle begins	An increase in demand for real estate services first absorbs existing vacancies. Increased employment means increased savings, a part of which is made available to the purchasers of real estate in the form of more liberal mortgages. By this time prices have increased enough to provide enticing incomes to real estate owners. This invites the construction of more units.
the boom	The boom is started. Eventually the new supply first catches up with the demand and then continues to increase until a surplus is created.
too much construction	The development of this surplus is at first not apparent as long as employment is at a high level. When employment recedes even slightly the surplus of real estate decrease, and vacancies begin to take their toll. Too late to apply the brakes of caution, construction halts until it almost comes to a stop.
the bust	The long discouraging period of waiting for better times and hoping for recovery of lost real estate values has begun. Foreclosures succeed each other in discouraging regularity. The downswing of the cycle feeds upon its own misfortunes.