In this new blog post, author Howie Bick takes a look at the housing market in 2008 vs. today’s crisis with the current Coronavirus pandemic. He also looks at the SPY and how the two time periods compare. This is a great read!
Analyzing the Real Estate Market Today vs. 2008
The Coronavirus has inserted itself as one of the most impactful economic events in the last 20
years. People have been comparing it to the 2008 recession, 9/11, and many other historic
economic declines. The markets have felt tremendous effects, as consumers have stopped
purchasing, the economy has stopped cycling, and business has come to a halt. The flow of
money has gone fully digital, with consumers purchasing from online-based companies, rather
than the brick and mortar shops. Companies have seen their stock prices decline anywhere
from 20% to 60%, in a matter of a few weeks. Early February the stock market was at all-time
highs, and in March, the market had declined by all-time low percentages.
The S&P 500 has seen incredible swings to the upside and to the downside, as lawmakers have
tried to create various solutions to help solve the current pandemic we’re experiencing. We
wanted to compare the way the markets have responded today, the S&P 500 index and the FRI,
the REIT index, compared to the times of 2008.
The Real Estate Market Today vs. 2008
The Real Estate Market in 2008, took a turn for the worst. It was the leading cause behind the
economic decline, with banks’ lending at incredibly high leverage points, lending to poorly
qualified purchasers, and then taking bets against the at the time, strong housing market. The
financial institutions behind the economy had made a large bet on the housing market and it
ended up going down the drains. Those same financial institutions had to be bailed out by the
government, in order to keep the economy running and to keep markets somewhat solvent.
In today’s time, 2020, the economy is in a similar downward trajectory, but this time, the
leading or driving cause is the pandemic of the coronavirus. The coronavirus has shut down the
world’s economy and sent everyone into a form of quarantine or self-isolation. Commerce has
been shut down, everyday activities have become very limited, and a lot of business has come
to a halt.
The Real Estate market today is a bit different than it was back in 2008. In 2008, it was tough to
find financing or any institution to lend on real estate. Today, it’s now incredibly difficult to find
any buyers for prospective purchases. The landlords and lenders are unsure of how tenants are
going to be able to pay their rents with incredibly high unemployment and a nationwide
economic shutdown. Making it increasingly more difficult for landlords to pay their mortgages.
The chain of money has been cut off to a certain extent. The money flows from business owner
to employee, to landlord, and to the mortgagor. That’s the way the money has flowed within
Real Estate, and in the more common times than we find ourselves in today. As the business
owner has seen a major decline or halt in business, its resulted in measures to cut costs.
Whether that means letting people go, or asking for deductions in salaries, or even not being
able to pay the salaries of its employees without its operations up and running.
There’s a lot of uncertainty surrounding what’s going to happen. Making it incredibly difficult to
find people who are interested on both sides of the table to transact under these types of
There are lots of questions being asked like, Is the federal government going to halt mortgage
payments on behalf of landlords? Are tenants who are not paying rent going to be evicted? Are
the bonds purchased on behalf of performing loans not going to be paid? There’s a lot of
interconnection between real estate, finance, and the economy, and a lot of questions that
need to be answered.
The S&P 500
Trend Spider Graph of May 2007 to March 2020
The SPY (the index of the S&P 500), went from $322.18 at its peak in February of 2020, down to
$247.58 in March of 2020. The major decline in values within one month, has been historic. The
23.1% decline has been recording breaking, within a one-month time frame. To give you
context, the economic recession of 2008, saw the SPY decline from 153.55 in May of 2007 to
73.44 in February 2009 at its lows. The 52.2% decrease then, was spread out over the course
over the course of 22 months. That’s an average decline of roughly 2.5% per month of decline.
Today, because of the Coronavirus, the markets have declined 23.1% in one single month.
The REIT Index
Trend Spider Graph of May 2007 to March 2020
The FRI has declined in a similar fashion that the S&P 500 has. From a high of $26.45 in
February of 2020, down to $18.46 in March of 2020. The decline the FRI has experienced in
2020 has been roughly 30%. During 2008, the FRI declined from $20.18, down to $6.13,
resulting in a decline of more than 69.6%. Compared to today’s decline, its roughly two times as
worse. A lot of the reason behind the steeper decline in 2008, was the leading cause of the
recession was driven by Real Estate, while today it’s been driven by a global pandemic.
REIT Index vs. S&P 500 Index
The two indexes, one measuring the overall market, and the other measuring the moves in the
Real Estate market, are interesting to compare against one another. In 2008, a lot of the
declines were centered around Real Estate, causing Real Estate stocks and companies to
nosedive. Investors, and financial institutions alike, were not considering investing into anything
that involved Real Estate. The asset class was seen as an almost no-fly zone, as people were
incredibly scared and scarred from the fallout of the recession.
Today, the market has declined similarly, but this time, Real Estate is not the driving cause. It’s
interesting to see, that when compared to 2008, the decline today in REITs, seems minor, and
on a much lesser scale.
Considering the SPY is composed of many different industries, and many different companies,
it’s held pretty well in comparison, at a 7% difference in more of a decline. In 2008, the
difference in declines between the two was roughly 17%, more than double what is today.
The REIT market will definitely be affected by fewer companies and businesses looking to lease or
rent office space, as the world has emigrated to online and digital platforms. Real Estate is
definitely going to be an interesting, and tricky business arena going forward, as there are
many uncertainties and ambiguities that have yet to be figured out.
In the Real Estate Marketplace
Within the weeds of the real estate market, much like every other business in the world today,
it’s come to a halt. There aren’t any deals really happening, as no one knows what’s going to
happen in response to many of the questions above. Back in 2008, the market came to a halt
because of mistakes in operating, today it comes to a halt because of uncertainty created by the
Buyers and sellers have no idea what’s going to happen; if their tenants are going to pay rent,
whether their real estate taxes are going to stay at the levels they’re at. Projecting cash flow or
income has become incredibly difficult, as no one has an idea of how much rent tenants are
going to pay, what commercial tenants are going to do, and the type of income a building is
going to produce. As a property’s income goes, so does its value. With all the uncertainty
surrounding real estate, it’s incredibly difficult to transact within the marketplace.
What to expect from real estate going forward?
It’s tough to predict what’s going to happen with the real estate market, as there are lots of
questions to be answered, and situations to be resolved. The real estate market now is going to
see a decline in transaction volumes, as people are unsure of what the future has in store.
Buyers are going to be a bit more hesitant to buy and attracted to dry powder or the capital
they already possess. Some of the bigger players who have lots of capital and are ready to
deploy might be very active and look for opportunities. Some sellers will find themselves
wanting to sell and get out of properties, while others might try and hold through this period of
uncertainty. The marketplace is definitely going to be more stagnant than it once was, meaning
Real Estate values will probably tend to decline a bit, due to its supply and demand-based
structure, and illiquidity in the marketplace.
Closing deals is going to become tougher and more difficult. Real Estate analysts will see
themselves modeling and projecting minimal to no future rent growth. Trying to figure out how
to understand if there’s going to be a delay in mortgage payments, a reduction in taxes, or the
financial effects of tenants possibly not paying their taxes, as well as some areas instituting a
It’s going to be a sign of strength if you’re able to maintain the status quo and maintain the
property you own. With income declining, and fewer people making money, there’s a good
chance that real estate values and the market take a hit.
Rent Growth is something that is going to be a difficult thing to come by. Raising rents or
increasing the amount a tenant pays is going to be difficult as more and more tenants lose their
job or see reductions in income. A lot of landlords have projected into their models and
financial analysis rises in rents over the coming years, which will most likely evaporate.
In 2008, Real Estate was one of the primary factors behind the downfall of the world’s
economy. A lot of the reasons had to do with aggressive investing, over-leveraged financing,
and faulty mortgages. The institutions behind the investments had to be bailed out by the
federal government. The economy went into despair, and so did the Real Estate market
The Real Estate market is now in question as well. With uncertainties surrounding what is the
Real Estate market going to look like after the economic shutdown? How does the Real Estate
market today, compared to the Real Estate market in 2008? And what should we expect from
the Real Estate market going forward?
Fast forward to today, it’s 2020, and the economy is in a downward progression, similar to the
one we experienced in 2008. Instead of Real Estate driving the economy’s decline, now it’s the
global pandemic of the Coronavirus. The world has shut down, and the economy has followed
suit. The world has gone into a state of isolation, predicated on self-distancing, with limited
interactions. Everyone, for the most part, is being advised to stay home, unless essential
activities like banking, food shopping, and hospitals are critically necessary.
Howie Bick is the founder of The Analyst Handbook. The Analyst Handbook is a collection of 16 guides created to help current and aspiring Analysts advance their careers. Prior to founding The Analyst Handbook, he was a financial analyst.