S.E.C. Real Estate Observer

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Mark Johnson asked me if I would comment on today’s Real Estate market and the history behind it, as well as the future market. I had to look back at the market nearly 44 years ago, when I first became interested in real estate. In analyzing the market, we need to look at the people who make the market, as well as the real property and its values. The sellers and buyers were mostly “Mom and Pop” types 45 years ago, dealing with “fixer-upper” homes, duplexes, small apartments, and commercial properties usually worth under $100,000. They have been replaced by larger developers and sophisticated investors. Today, the brokerage community has evolved into well educated professionals, for the most part.

This is how it was in 1961 when I first became licensed in Phoenix, AZ. My real estate exam took 45 minutes. That was a good thing, since my car was in a one hour parking spot. Since then, I’ve been licensed in Idaho, Nevada, and Colorado. These exams take a half a day and much more studying. Today, I often have to smile when I look back on property values. Houses in Phoenix averaged $14,000. Today, houses in most major markets, average over $200,000. Hawaii is now over $500,000. I have a letter from a family member suggesting that Paradise Valley, Arizona might be a good investment at $5.00 per acre. This letter was written in the 1940’s. By the time I moved there in the 1960’s, some Paradise Valley properties were still available for $1,000 per acre. Today, it’s a million dollars for an acre lot. I am beginning to realize that in some cases we’ve seen appreciation approaching 1000%.

Many events caused this, such as population growth, increased incomes, and GNP, but I think a lot of it was fueled by education in the broker community. As S.E.C.’s, we all know about Richard Reno, who pioneered exchanging, refined counseling, and understanding motivation. There were some other concepts that had an even more reaching effect. Jay Levine and Bill Monsees pioneered real property analysis and the effects of tax shelter and leverage. Jay convinced the National Association of Realtors to start Realtron. This consisted of a main frame computer that took up several rooms at the office in Chicago. In the beginning, we had little black boxes that looked like a typewriter. At a client’s office, we laid a phone in the cradle, typed in the current rent roll and expenses. Then it printed out a 20 year projection. This was a decade ahead of the personal computer, but performed a few of the same functions. At the same time, Bill Monsees traveled the country giving classes to exchangors and showing us how to use the APOD sheet.

During the 60’s and 70’s, exchanging literally exploded due to the Starker Case and Jay and Bill’s teaching, which became the CCIM program. Also, Richard Reno and Chuck Chatham and several others promoted and taught counseling. By the early 1970’s, many of us combined property analysis and people motivations together and developed into well educated dealmakers, which is what we are today. As a result we spend more time as principals and work less as brokers. We are continuing to evolve.

Where is the market going today? We’ll always have booms and busts, but I’ve noticed the booms are getting longer and the busts are shorter. Think about it. Every building occupies land space. There are more people, we are better trained in every way, and communication has nearly eliminated geographic barriers. The only thing that hasn’t changed is that we have the same amount of acres today that we had 40 years ago and it will be the same 40 years from now.

I only remember one rule from my college economics class: The basic law of economics is supply and demand. In the case of land, the supply of undeveloped land will always dwindle and as populations increase, the demand will always increase. The result is value change upward. We are in the best long term business in the world.