Real estate booms and the press

In my last column, we discussed a concept from John Naisbitt's book "Megatrends" about how the press reports what is of most interest to its readers. We additionally began exploring a research project I conducted back in the early 1990s where I compiled economic and real estate articles historically over time and marked negative-based articles with red X's and positive based articles with green O's. I also explained how the Dallas/Fort Worth economy had been in a severe recession in the late 1970s, when a big event occurred that turned it all around.

That big event was the announcement of American Airlines choosing Dallas as its new national headquarters. Within the next 12 months, 18 other mid to large size corporations also chose to move to Dallas. It was the consensus of many experts, in retrospect, that this rash of relocations was because these other corporations felt, "If American Airlines, with all of their research and money choose Dallas; why do the same research only to find out the same thing?"

The interesting thing is, this was the catalyst that started the hottest real estate and economic boom in DFW's history. From 1980-1985, Dallas broke almost every record for growth in almost every economic category: No. 1 in residence construction for three year running, No. 1 in office construction and absorption, No. 1 in job growth, No. 2 in wholesale marketing, etc.

The interesting thing during all of this was the pattern of the articles that appeared in press. The headlines were solid red X's until the American Airlines announcement. The following month, it was 80 percent X's and 20 percent green O's. Then it went to 75 percent red X's, 25 percent green O's. Then 60/40, 50/50, 40/60, 20/80, and within a year it was almost 100 percent green O's. Gone were the reports of bankruptcy, failed businesses, high vacancies, etc. Additionally, this "good press" continued strongly until August of 1985.

Let me finish proving up this theory. I just referenced August of 1985 as an important transition point for good press about Dallas' real estate boom. At this time, all the headlines were still big green O's; then a local real estate columnist wrote an article that, instead of appearing on the front page of the business or real estate section, appeared on the front page of the entire newspaper. The headline was a big, fat, red X. It outlined over-building, rapid appreciations and profits, rampant speculation and predicted a real estate bust.

"Billionaire Cab Driver: Timeless Lessons for Financial Success" is an easy-to-read financial primer from a man who revolutionized the personal financial management industry. Jody Tallal's latest book offers timeless lessons for financial success, no matter your occupation, salary or personal savings

Local real estate people laughed at that article and its author. They said things like "where's he been?" or "he's just jealous of all the money being made by real estate people."

However, within one month, several other red X's started to appear. Then it went 80 percent green O's, 20 percent red X's; 75 percent green O's, 25 percent red X's; then 60/40, 50/50, 25/75, 10/90. By Jan. 1, 1987, just five months later, it was all red X's again.

In Dallas, the greatest real estate boom in modern history came to a complete halt, and a full real estate recession began in January of 1986, exactly paralleling the 100 percent "bad press." Front-page stories first started citing overbuilding, then bankruptcies of major local citizens, then corporate closedowns and move outs, and finally, bank failures.

Now, it is interesting to research during the good press times if there were any bankruptcies, like back in January of 1985, when all of the articles in the paper were solid green O's. Of course there were!

Were there corporate move outs during this period; again, the answer is yes. It is just that it was not front-page news at that time as far as the paper was concerned. They are supposed to be reporting what people are most interested in. Therefore, to them the glass was still half full.

I have asked the following question at speeches around the country to make a very important point to prove this theory. What was the difference in Dallas on Jan. 1, 1985, when if someone announced on a downtown street corner that he was in the real estate business he got run over by loan brokers trying to give him money for a project, and then one year later, on Jan. 1, 1986, when someone made the same announcement and could not borrow a dime if his life depended on it?

Looking back, the local economies in both years statistically proves up almost identical. There was already 33 million square feet of overbuilt space in Dallas on Jan. 1, 1985, and that did not appear to bother any lenders. By January of 1986, there was only 36 million square feet, less than a 10 percent increase, and not a single dollar could be found for any kind of project. What was the major difference? The only difference I can find is the headlines of the front pages across the nation, and what they were reporting about Dallas.

Let me point out that I am not blaming the press or suggesting that they are maliciously doing anything. I am simply stating that it is a fact that almost anyone who has control over large volumes of money formulates his or her opinion in large part based on what they read consistently in whatever publication they give credibility. If that press is all positive, they want to be a part of that opportunity. Likewise, if it is all negative, that cannot risk taking a chance, because if they are wrong, there is no excuse in light of all of the negative press available at the time.

What this indicates is some very exciting information, that there is a reliable method available for predicting trends and cycles in real estate. I believe if you will start researching what I have said here today and applying this form of technology to your own environment, wherever you operate, you will find it to be extremely accurate.

In my next column, I will discuss more about when is the best time to start buying real estate in a downturn.