In our continuing series, we are exploring a concept called, “The Garrison Cycle”, which was created in 1985 by Marc Garrison who started the National Association of Real Estate Investors, NAREI.

The Decline Phase is characterized by what Garrison calls a “psychological hysteria” where the down market feeds on itself.  Sellers now are

unable to sell their properties, because they are unable or unwilling to take losses to get out.  Most buyers have retreated to the sidelines waiting until the market recovers, while some buyers prey on desperate sellers.

Occupancy levels and rents decline while foreclosures and defaults rise.  In response, the mortgage market tightens and the government tries to step in; both will ultimately make the situation worse.      

Looking back, we experienced the Decline Phase starting in 1985, accelerating in 1986 with the Tax Reform Act, and falling into full decline with the stock market crash in 1987.  We did not end the Decline phase until around 1991. 

In my last article, I stated that the Equilibrium Phase occurred recently in 2005-2006.  With the increasing foreclosure rates, the shake out in the mortgage industry, and the government trying to step in, I believe that we are fully now, in 2007, in the Decline Phase.  I hope that history does not repeat itself and we need to wait 4 years (until 2011) to see the end of this phase.