In a CNBC interview that took place on July 1, 2005, Ben Bernanke said:
“We’ve never had a decline in house prices on a nationwide basis.”
This claim is coming from a scholar who specialized in the Great Depression. The Great Depression was an era of nationwide house price declines as represented in the red box below.
Reviewing the work of Roy Wenzlick, we can see that house price declines were not the only measurable metric that real estate suffered on a nationwide basis. Throughout the U.S., in more than 70 large cities we see that rents decreased, number of new dwellings decreased, office vacancies increased, farm land values decreased and real estate transfers decreased. Below data and charts based on the work of Roy Wenzlick demonstrating nationwide trends in real estate.
Rents
In the charts below, Wenzlick shows the rents in 32 cities across the U.S. from 1915 to 1935 (Wenzlick, Roy. The Real Estate Analyst. December 1935. Page 486-487.). It can be seen that rents increased from 1915, topped out in 1920 and then declined until 1935.
No city was exempt from the rise and declines in the rent from 1915 to 1935.
New Dwellings
In the chart below, Wenzlick shows the number of new family dwellings that were built in cities with populations over 100,000 (Wenzlick, Roy. The Real Estate Analyst. August 1936. Page 594-595.).
This is only a sampling of the cities provided by Wenzlick. Cities on the west coast like Seattle and Los Angeles reflect the exact same pattern of peaking in the early to mid-1920’s and hitting bottom by the early 1930’s to mid-1930’s.
Office Building Vacancy
in the chart below, Wenzlick shows how office vacancies trended higher from 1925 to 1933 in most large cities across the U.S. (Wenzlick, Roy. The Real Estate Analyst. August 1935. Page 432.).
From New York to San Francisco, there is an undeniable rise in office vacancies.
Farm Real Estate
In the chart below, Wenzlick shows how farm real estate fared during the 1910 to 1935 period (Wenzlick, Roy. The Real Estate Analyst. August 1935. Page 524-525.).
A detail of Alabama reflects much of what occurred around the nation.
The national average (48 states) is reflected in the dotted line while the state of Alabama is the solid line from 1910 to 1935.
Real Estate Transfers
Below are the real estate transfers from 1930 to 1936 (Wenzlick, Roy. The Real Estate Analyst. May 1936. Page 549.).
Real estate transfers were well into a decline in the entire period, at least from 1930 to 1934.
Conclusion
When I did loss mitigation at a leading mortgage insurer from 2010 to 2012, we had a company-wide meeting about why the future viability of the company was at risk. After the meeting, I asked the head of risk management why the mortgage “crisis” wasn’t anticipated and the risk officer said, “we’ve never had a decline of real estate on a national basis.” I’m sure that up to that point, many real estate professionals were defaulting to the view that was promoted by Ben Bernanke in July 2005 and acted accordingly.
Unfortunately, even a cursory view of the data from the most understood period of financial destruction would have shown that, yes, we have had many declines in real estate on a national basis.