The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 58

The Long Cycle in Real Estate Activity

Does real estate have cycles? Yes, very definite ones; they're just longer than most folks' memories can grasp—and harder to see. The daily availability of stock prices and interest rates make financial markets emotionally volatile and short-term swings highly visible. The stock market is like a silent partner who is always offering to buy or sell your part of the business—an offer dangled in front of you like bait, luring you into stupid transactions. Not so with real estate—there is no daily bait.

Instead there is an 18-year sweeping Long cycle, named after Princeton's Clarence Long, who first wrote about them in 1940. This chart traces the Long cycles back to 1870. (Disregard the top part, which covers turf similar to Chart 62.) In your business lifetime, you might see two or three Long cycles at most, but you don't think of them as cycles. The wipeouts seem like unique disasters that happened several times in your life.

Without stock-like daily prices and volume to help you envision these cycles, it helps to see them as cycles stacked on top of other cycles. First comes the Kondratieff wave (see Chart 84), which is the most powerful underlying force. Then stacked on top of and swinging around that fluctuating base is the Long cycle shown in this chart. These Long cycles are caused by the interplay of Kondratieff-generated interest-rate fluctuations and the satisfaction of generational demands for shelter. Finally, stacked on top ...