Real Estate Recessions

Much has been made of the real estate crash of 2008. With perfect hindsight and data, we can now form some impressions about how that downturn related to past falling markets. Using data from the National Council of Real Estate Investment Fiduciaries (NCREIF), more than 65,000 annual return observations over 30 years (21 years in the case of residential properties), you may first choose to set the degree of "terrible" by choosing a quantile. Working with that segment of outcomes, the plot shows the number that occurred in 2009 and the number that occurred in the prior worst year (usually in the early 1990s).
The label above the plot reflects, for that quantile of data for all periods, the ratio of the 2009 observations to the prior year worst and what percent of all worst observations 2009 represents. For instance, the default quantile in 2009 had 1582 bad outcomes, which were nearly seven times the 229 worst outcomes constituting the quantile in 1991. Also, nearly half (48.39%) of all the bad outcomes for three decades occurred in 2009. The drop-down menu allows you to look at specific segments of the market (office, industrial, retail or residential). For scale and comparison, the blue dots are the opposite end of the spectrum (), which is the good outcomes in those years.
  • Contributed by: Roger J. Brown
  • Appreciation for data: National Council of Real Estate Investment Fiduciaries

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DETAILS

Large datasets for investment real estate are rare. One important lesson of this Demonstration is how much you can do with a single column of numbers indexed only to a year, classified by product type. Real estate economics is characterized by long cycles, the study of which may lead to an explanation behind the boom-bust behavior generally attributed to real estate.
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