I’m writing this post after Game 2, with the series tied and now down to at least a five-game series. Fortunately, these are two great teams that seem to be pretty evenly matched … even though the first two games seemed to be more about jitters and errors.
Although the St. Louis Cardinals and Boston Red Sox seem to be evenly matched, they do have different styles. These differences are best captured in the “mottos” of each—“The Cardinal Way” and “Boston Strong”.
The Cardinal Way is about a system: good talent, with the humility to be great teammates, about intense preparation and hard work, about trust and accountability, and then believing these things will show up in the heat of the moment with a positive result—the next guy will always step up. Boston Strong is about emotion and commitment. Boston Strong patches evoke the rightful and prideful emotion of the town and beards aplenty showing the commitment to one another, but also another form of emotion.
Really, tell me again what the Cardinal Way and Boston Strong have anything to do with a real estate blog? Well, there are two ways to look at where we are in the real estate cycle: systematically and emotionally.
From a systematic perspective, we might look to data. It’s factual, but can paint different pictures. One type of data would be the historical length of real estate cycles. The trough to peak in real estate has historically been about six to eight years. From this data perspective, if we started to recover in ’09 (with 2008 being the trough), then this real estate cycle would peak 2015-16.
However, if we look at a different set of data—more macro—peak employment, it might show a different picture. In the last 15 recoveries before we entered a downturn, we reached new peak employment levels from the prior peak in 13 out of 15 recoveries. From this peak employment perspective, our economy would need to create about 9 million more jobs. If we generated 175,000 jobs per month, that would suggest we have about 52 months left to a peak, or sometime in 2018.
When we are incorporating an emotional perspective, we rely more on gut, intuition and hopes or beliefs. One way we might choose to interpret the real estate cycle with this perspective is that we are coming out of a historically deep trough and, therefore, are experiencing a historically slow recovery. The intuition or belief might be that this should naturally lead to a longer recovery than the typical six to eight years and “easily” last to 2018-2020 or longer.
Another emotional perspective that one could take is to take some real data, but then make an extrapolation that is really more possibility than trend. The real data in this case is that during the last cycle ending in 2008 we built less new supply (as a percent of existing stock) than ever before. Additionally, during this four-year-plus recovery, we have barely cranked up the new supply machine. Those are factual data points. From that starting place, one could have a belief or possibility perspective that would extrapolate from this data that this cycle will therefore last longer due to better demand/supply characteristics.
So, tell me again what the World Series has to do with real estate cycles? Well, although I started writing this after Game 2 of the World Series, I did not push the “send” button until after Game 4. Games 3 and 4 of the Series reveal what we should all know and accept: We have no idea when the cycle will end or what will cause it to end. Game 3 was won on an “obstruction” call and Game 4 was won on a pick-off move (which has never before happened in a World Series).
These are the perfect “Black Swan” events that show a) we don’t know what will happen and it could be really unexpected, and b) we don’t know how the unexpected event will determine who wins and who loses. Game 3 helped the Cardinals win and Game 4 helped the Red Sox win.
It would not be right if I didn’t just end this blog on the World Series and Real Estate Cycles by concluding Go Cardinals! And please give us many more years of good times!
Michael W. Dardick is president and CEO of Granite Properties Inc., which he founded in 1991. Contact him at [email protected].
