TRENDLINES: The Recession's Toll A Slump in Property Values Sets This Recovery Apart
Why has the U.S. economic recovery from the 1990-91 recession been so slow and halting compared with those following earlier stamps? One major reason can be seen in the chart at the right</br></br>In all of the other postwar recessionsÛÓ1960.1969-70, 1974-75.1980 and 1981-82ÛÓthe value of real estate owned by private businesses never stopped rising, according to figures gathered by the Federal Reserve. Even after adjustment for inflation, there was at most a brief pause before the value of business real estate started to climb again.</br></br>value of business real estate plunged by 26 percent in just three years, and the decline had a devastating impact on the economy.</br></br>The huge deflation of real estate values bankrupted many businesses, particularly real estate developers who had borrowed heavily to finance purchases of land and construction of buildingsÛÓ offices, shopping centers, warehouses, apartments, condominiums and residential subdivisionsÛÓthat suddenly were worth less than they had cost Those enormous losses also bankrupted hundreds of the savings and loan associations and commercial banks that had provided the loans.</br></br>THE VALUE OF REAL ESTATE, adjusted for inflation, usually has only paused in its upard march during recessions. But in the 1990-91 slump, real estate values fell-end in some cases are still dropping. This decline continues to be a drag on the whole economy. Periods of recession are shown in gray.