Repeating Long Term Cycle In Real Estate

One last point on bubbles as they relate to the long term cycle.  As I’ve written before, I believe we are in the upswing of a Kondtratiff wave that should support commodity and hard asset prices.  Tom and Sherman McClellan make an interesting point regarding real estate as it fits into the long term pattern of real estate bubbles in their McClellan Market Report –

"The supposed bubble in the real estate markets nationwide is getting a lot of attention now, not only from the financial media but from more standard print media as well. To followers of long term cycles, it should not be too much of a surprise that we are seeing a real estate bubble occurring right now.

Following the end of the Civil War, there was a huge boom in railroad construction and investment, with hundreds of railroad companies starting up. This led to an overcapacity of railroads and a collapse of that sector in 1871. A multi-year depression followed, but thatled to a boom in real estate during the 1880s, which climaxed in 1889 with the Oklahoma Land Rush. That was a government sponsored race by people wanting to homestead in Oklahoma.

Following WWI, there was a huge boom in automobile companies. Initially, any fellow with a barn and some tools was an auto manufacturer, and that led to a glut of automobiles, especially in comparison to how many paved roads there were at the time. This led to a collapse of the auto motive sector from 1919-1922, and a consolidation among the remaining players into what are now the big 3 U.S. car companies (Ford, GM, and Chrysler). That collapse led to the big Florida land boom of the mid-1920s, the ridiculousness of which was portrayed by the Marx Brothers in their 1929 movie “Cocoanuts”. Another boom in residential real estate occurred in the 1950s, following the end of WWII, and leading to planned communities typified by Levittown.

Springing forward to a more current time frame: following the end ofthe Cold War and also the first Iraq War, we saw a boom in information technology. This was transformative to the economy in ways similar to the transformative nature of the railroad and the automobile. The technology boom reached a climax when any fellow with a wweb site constituted an Internet company.

By now you should be seeing the pattern here. A period of consolidation followed the tech collapse, and the new big 3 are Dell, HP, and Gateway. So given the time spacing of real estate boom that followed the collapse of other “technology” sectors, we are right on schedule to be seeing the post Internet bubble real estate boom. When it ends depends on factors that are not as neatly organized, and which would be the subject of a different discussion. Our point is only that this real estate boom is right on schedule for how these war-boom-bust events following the end of World War I, unfold."