We all have moments that we think, oh gosh, I wish I knew then, what I know now. How many times did you wish you bought that property that has now increased in value 10-fold? To help address our challenges today, it’s useful to go back to the past and see what we can learn.
In my last article, I wrote about my research of the 1929 and 1987 stock market crashes. I found a very strong parallel and connectivity between the real estate industry and the stock market.
When a stock market was up, real estate prices reacted accordingly, and when the stock market took a dive, so did real estate.
The Great Crash of 1929 took place on Thursday, October 24, 1929, and Monday and Tuesday October 28, and October 29, 1929. The aftermath was the Great Depression of 1932 to 1936, which led to the Second World War, and eventually the recovery of the economy.
At the time, like today, New York City was a great metropolitan financial centre and the New York Times was one of the most respected newspapers in the U.S. for economic news.
Through the headlines of the Times, let’s observe what respected people said about the state of the economy.
January 8, 1929 (approximately 9.5 months prior to the big crash): Baron Collier gives Coolidge findings from a nationwide survey. Sees good business year.
In only a few short months there will be crowds gathering on Wall Street with the depression of the 1930s right around the corner. Breadlines and unemployment will set the stage for the worst economic times for years to come in America and throughout the world.
If you read this headline at the time, you might have been tempted to take your savings and put them all in the stock market. After all, these people quoted in the paper know what they are talking about, right? They believe in accountability, they are the mavens of the time, they are corporate titans, they are formidable and well financed. Sound familiar?
August 3, 1929 – Stocks swing up on strong buying. Demand for high prices brings advance. Big gains for six others.
The stock market is guided by manipulation of the big-time investors’ pension fund speculators, and the little man does not have a chance. It is by a large measure driven by emotions. And when the private individual sees headlines such as these, they feel that it’s a good time to buy.
August 2, 1929 – Bank of America sees a prosperous fall.
When you think about Bank of America, it’s a powerful endorsement of things to come. When The Bank of America says something, it’s a definitive statement from a leading authority.
If the Bank of America says that prosperity is around the corner, BOA knows better than I do, any time. The BOA has intimate working knowledge that I don’t. They have the power to have you succeed.
But alas, I know what is going to happen. There will be people on Wall Street jumping from the top floors of the stock exchange because they lost every penny they have ever saved and they couldn’t feed their families.
September 8, 1929 – Stock prices rise to a new high level.
It sounds good for the investor just 46 days prior to the big crash. I like the way the industry uses words to manipulate investors. Have you heard of the SIV Investments funds? These were packaged mortgages that created the Sarajevo situation we are in today. These dodgy investments and the reason why we have a hard time selling our listings today is as a result of these mismanaged investment vehicles. One was called High Grade Structured Credit Strategy Funds and another was High Credit Grade Enhanced Leverage Funds. They were packaged without going into too much detail about their security and were sold in the billions to various international institutions, pension funds and investment firms around the world.
October 11, 1929 – Business outlook: Bright. Credit men see stock speculation weathered. An executive manager says that workers are generally employed at good wages and that production is an orderly manner.
Who the heck are those credit men? And here we go again using the words like credit; it conveys that someone knows something more than what you know. You tend to gravitate towards believing. After all, who wants bad credit?
Avi Rosen is a manager at Century 21 Your Number One Real Estate in Toronto. He has more than 40 years of experience in the real estate industry and is a real estate trainer, author and teacher. He has published many books and has written on industry related subjects both in Canada and the U.S. Email [email protected].
