When the stock market crashed 50 years ago, I was wearing knickers and living in a semi-detached house in Williamsport, Pa., that my parents had purchased three years earlier -- at the peak of the booming prices in the 1920s.
The two-story brick dwelling was priced low by today's standards. So was my dad's post office income. But he had what was known as a steady job.
He survived the ensuing depression of the 1930s by enduring only a relatively small pay cut and keeping the other side of our double house rented most of the time, but at a reduced price.
As was customary in those pre-FHA days, our house had a 6 percent mortgage with a local bank. By sacrificing and scrimping, my parents managed to pay off that mortgage before 1940.
They had no 30-year amortization schedule. They met a schedule of interest payments.Every time they accumulated $100, my dad told me later, he gave it to the bank that had made the loan and reduced the indebtedness -- and, of course -- the next interest payment.
While this experience was not typical of the 1930, when many of our friends and people across the nation had a rough time existing, it is mentioned now as a lead-in to discussion of whether this nation is headed for another depression and a concurrent real estate market collapse.
A few observers, including two whose views have recently been cast in book form, take the dimmest of views. Many others are more moderate -- generally viewing this period as another cyclical shakeout of the abnormally high rate of house price escalations in the 1970s. The elusive consensus is that the 1979-1980 downturn will probably be less severe than that experienced in real estate in 1974-75.
Michael Sumichrast, chief economist for the National Association of Home Builders, has read "The Coming Real Estate Crash," by John Wesley English and Gray Emerson Cardiff (Arlington House, $12,95) but is skeptical of its claims. He did stir up his statistical cache, however, to come up with some countering observations.
"A thorough examination of the various factors suggests that a drop of 25 to 50 percent in the prices of homes -- as suggested by some -- is not very likely," he said this week. He added that prices of homes generally held their own during three recessions prior to 1930.
"Even during the Great Depression of the 1930s, when the stock market dropped 89 percent, the housing price index for the period 1925-34 dropped only 34 percent and the median selling price of houses declined to $5,759 in 1933 from a peak of $7,809 in 1925," he said.
The sharpest drop (11.6 percent) occurred in 1933. Housing prices were up 3.7 percent in 1934 and 5.4 percent in 1935."From there on it was pretty much an upward trend," Sumichrast said.
It should be interjected here, however, that it was difficult to resell houses in the early 1930s, for obvious reasons. One might also ask: Were foreclosures common?
"In 1926, the foreclosure rate was 1.14 percent, 2 1/2 percent in 1930 and the peak in 1933 was 3 1/2 percent with 252,400 houses being foreclosed for an all-time record," Sumichrast said. He pointed out that 94 1/2 percent of homeowners kept their homes.
Currently, according to Thomas Harter, chief economist of the Mortgage Bankers Association, the rate of foreclosures has been running at a minimal 0.2 percent.
He said a study he made in the early 1970s showed that marital difficulties are the prime reason for foreclosures, followed by curtailment of income due to illness or injury and unexpected expenses such as those for the illness or injury to a child.
Harter also commented that the level of personal income of home owners is not related to the likelihood of a foreclosure.
"Not surprisingly, the larger the down payment made on a home the less likelihood there is of a foreclosure," he said. "Very few foreclosures occur after the second year of ownership and almost none after four years."
In addressing the likelihood of a real estate crash, Jack Carlson, chief economist of the National Association of Realtors, said that no crash or big depression is likely because the "pre-conditions are not the same as they were in 1929."
Carlson said that currently there are no excesses but rather tight markets for office and industrial space, rental housing and for-sale houses.
"Demographics are our best basis for confidence in the future," he added, "because it is recognized that the nation has a need for 2 million or more new dwelling units annually to accommodate normal growth and formation of new households in the 1980s."
He also pointed out that total new housing production is expected to fall to 1.7 million this year and be only 1.8 million next year. "That's not even meeting our needs," he stated.
But what about a downturn in the economy and a shaving of the rate of inflation?
"We have a built-in influence for at least 8 percent inflation," he said, "and I am confident that the shortage of housing will keep the median rise in the prices of new and resale houses above the inflation rate." He cited consumer demand and the restrictions of zoning and other local actions, as well as "federal inhibitions on the supply of timber" as reasons for this.
Carlson asserted that the national concern should be more for an increase in the supply of rental dwellings to take care of normally transient households and others that simply prefer rental living to ownership for whatever reason.
"Rents have been rising below the rate of the consumer price index and there is no incentive to building rental structures in an atmosphere of rent controls," he said.
In reviewing his reasons for putting down the likelihood of a major real estate crash, the NAHB's Sumichrast cited the current unlikelihood of bank failures and losses to depositors suffered in the 1930s; available help for unemployed persons today, the high level of government employment (20 percent today as opposed to 9 percent in the 1930s) and the double incomes of one-third of all households.
"Housing is not a commodity like soy beans or pork bellies," Sumichrast said. "It does not have the same speculative features.While there has been some speculation in housing, the numbers show that between 1970 and 1976 the single house that were rented out by owners actually declined 6.4 percent to 7.2 million from 7.7 million. Meanwhile, the number of single houses occupied by owners increased 18.7 percent to 42 million from 35.5 million.
Like Carlson, Sumichrast also predicts continued high demand for housing in the 1980s. He said that need will be 20 percent higher than it was in the 1970s.
Sumichrast totally discounts the advice of the doomsayers that owners should sell their houses now and put their money into stocks or bonds and rent houses. (He has written a book with Ronald D. Shaffer of the Wall Street Journal, called the Complete Book of Homebuying.)
"We already have a shortage of rental dwellings, with a national vacancy rate of less than 5 percent and the vacancy rate in single houses at 1 percent," Sumichrast points out.
"The best we can expect this year and next is for some moderation in the rate of increase in new and resale housing prices," said the economist, whose reputation in the industry has been one of a "bear" rather than a "bull."
Sumichrast sees the prices of new houses declining from a 13.8 percent increase rate this year to 11.2 percent in 1980. "That is about all one can expect," he added.
Neither Sumichrast nor Carlson foresses a coming crash in real estate. Me? I keep wondering what my father would be saying about today's level of real estate prices.