Can early 911 (and other collector car) prices survive the impending RE crash?

[jkarolyi]

We've been seeing a dramatic increase in the price of collector cars during the real estate (RE) boom of the last five years. The prices of longhood 911s have doubled during this time. My bet is that a lot of home equity loan money is being used to buy these cars. Because there is a fixed supply of collector cars, the prices have skyrocketed due to increased demand because of this money supply.

So what happens when the inevitable RE crash (or softening as the optimists put it) does away with home equity lines of credit? I remember when Ferrari prices crashed in the early 90s when California (and other?) RE declined during the same time period.

Are the two seemingly unrelated declines linked? Also, was it just Ferrari values that boomed in the late 80s and crashed in the early 90s, or did other collector cars including 911s do this as well? Isn't this when a lot of the real Carrera RSs ended up being exported to Japan by Japanese speculators?

[philvb]

Hi Jay,
Hope you are doing well. I think there is a connection between real estate and collector cars.

The only (other than factory racecars) 911 that peaked in the late 80s was the 2.7 RS. But, it was definitely not a Ferrari only show - open 356s increased dramatically from the mid to late 80s. Speedsters and twin grill roadsters made it to the general area of $100k. A few years later in the mid-90s the same 356s were much cheaper.

I moved from Colorado to So Calif in 1990 - my house in CO had already started declining in price at that time (to the point that I didn't sell it). Unfortunately, CA was peaking in real estate prices at the same time... we bit the bullet and bought anyway. Then, over the next few years, prices in most parts of So Calif decreased "a lot" - my new house included.

At the same time, 2.7 RS and open 356 prices took a dive. Also, Porsche new car sales suffered terribly - to the point that it looked like Porsche might be taken over by a larger company.

Then, when the economy started to recover and eventually boom during the mid to late 90s, real estate prices in CO and So Calif both followed along. As did 356 prices and Porsche new car sales.

A connection to be sure. There are other factors to consider as well though... the age of the collector car in question and the age of the buyers interested in them for example. Myself and a number of other folks wondered why early 911 Esses, for one, did not track along with 356 prices during the eighties... in many cases they were "rare-er" than the higher priced 356s. I think the "age" factor was part what kept it from happening then and has helped the up tick in early 911 values in recent times - along with the RGruppe, The Early S Registry, and vintage racing of course.

There's more, but I'm out of time for now.
Phil Van Buskirk
70 911 E mfi non-sunroof coupe
82 911 SC non-sunroof coupe (short stroke 3.2)
RGruppe #98
Owner PML, The Market Letter for Porsche Automobiles
www.pmletter.com

[trader220]

I would not hold my breath waiting for an all out r/e crash in all but a few areas of the country. In the late 1980’s it wasn’t just the Ferrari’s that were bid to the moon, although they lead the pack, all sorts of exotic European stuff went for stupid prices. People paid top dollar for anything and took a huge hit in just a few years. Think that might happen to the muscle cars which go for insane prices these days? I am sure there is a connection to r/e and car prices but not many people are taking the sums of money out of their home it takes to by a 50k or more collector car. Maybe its been pushing up the lower side of the collector car markets, ask the BMW 2002 guys or the TR 6’s maybe something like that.

I remember my first job on the exchange floor in late 1986 and 1987. Come bonus time in 1986 there were all sorts of Wall Street yahoos planning fat buys in the car markets. Quite a few had to re-evaluate their life style around late fall 1987.

I also think the myriad of new financing opportunities for collector or third cars are going to keep the market fairly stable… But in the end we’re all just speculating.

[philvb]

trader220 wrote:

"I would not hold my breath waiting for an all out r/e crash in all but a few areas of the country."

I agree. Also, really expensive cars are usually purchased by people that don't need home equity loans or refi's to do it. But, cars in the price range of a 67 - 73 S and down could sometimes fit the home loan model.

[jkarolyi]

>$60-70K good condition early S's aren't unreasonable and is relatively sustainable, IMO.

The 911S isn't exactly common, but it isn't that rare either. More than 2,000 911S coupes/targas were built most years, multiply x 7 model years (67-73) and you have 14,000+ 911S cars out there. Of course many have been wrecked but you get my point...these cars aren't rare.

Makes me think the $60-70K pricing is due to over-supply of cash and not real sustainable value.

[grudk]

I am convinced that there is a direct relation between the overvaluation of homes and collector cars. Easy money supply has driven both up. When the belt tightens, both will fall.

Some of the run-up is justified, but much is not. Homes in LA area have doubled in value (perceived value, that is, unless you sell) over the past 5 yrs -- not much of a stretch to believe that some of that home re-fi money went into luxury cars, and not just into granite countertops and Viking stoves. Just look in the driveways, people. Did everyone in LA get a raise? Nope, but there sure are a lotta fancy cars about.

When people can no longer re-fi their way into more luxuries, I believe that collector cars will be among the first to drop in value. Demand just won't be there.

Now, exceptional and truly RARE cars may not drop. I think the internet/E-bay have helped disseminate sales opportunities much more efficiently than a decade ago. And there are plenty of rich folks around. Don't think that 911s and 356 are rare enough. RSR, yes.

[jorian]

Rising interest rates will sound the end of the hysteria in the sub 100K car market.

[trader220]

The rate hikes are very close to the end of their cycle. Do you think that last .25 point is going to scare a lot of people off in the car market? Higher gas prices will put a bigger dent in their budgets

[jorian]

If I thought rates were going to peak at another 1/4 point I'd be more bullish. And here in Canada our much higher than US gas prices have done little to deter driving/buying habits.

[trader220]

The huge majority of institutional guys we deal with look at one more hike, and there is a small number that see 2 more tops. I didn’t say gas prices would deter people I just said it would take a bigger bite out of their budget.

[Wayne 962]

I think that the market will suffer. Tremendously? Probably not too much so, as the cars will always need owners. The 911RS market and 911S market will probably see some significant correction - there's just no real justification for super high prices these cars are getting. They built 1500 RSs (which in collector car circles is a tremendous amount), and as someone pointed out - more than 14,000 911S models. The values rise when people have cash and are looking for cars to buy at the moment because they have that cash burning a hole in their pocket. Just because one car sells for $70K, it doesn't mean that each one in the whole lot is worth $70K. It's only worth that if you sell it at that moment in time.

As people run into trouble with their adjustable rate mortgages and their home equity loans' payments increasing, one of the first things to go will be the collector car. From a Wifey point of view, it's the most non-essential item in the household (probably). I think we'll see a lot hit the market soon. The sellers who are selling their cars now, seem to be doing so, not because they have too many cars, but because they need the $$$.

-Wayne

[turbo6bar]

$1 Trillion of home equity has been extracted over the past 3 years. That faucet will be turning off as rates head further north and appreciation levels flatten. No one can predict the outcome, as we've never been down this path, but obviously if you are holding for appreciation or investment, the risks to long positions is greater than any time in the past 5 or 6 years.

.25 fed rate increase is not the primary driver. You cannot ignore the 200 basis points we have already received in this past year or the lagging effects of that increase.

[Wayne 962]

I think there's a bunch of them still around. I have no idea about the numbers, but I just had lunch with someone from Porsche, and they were spouting off survey numbers like 20 year-old cars, 75% were still on the road or something like that. Not sure - Porsches will always be collectible - it's rare that they end up in the crushers...

-Wayne

[jkarolyi]

Just looked in my little red book and added up the figures. There were 10936 911S coupes and 4970 911S Targas made for a total of 15, 726. Even with 25% attrition, that a heckuva lot of cars to be considered rare. I predict the 911S will settle back down close to the prices they went for in 2000 before the RE boom. What could you buy a nice numbers matching 911S for back in 2000?

[Wayne 962]

Originally posted by jkarolyi
What could you buy a nice numbers matching 911S for back in 2000?

Back then, it didn't really matter whether it was a T, E, or S model - the condition of the car was paramount. A really cherry T would go for way more bucks than a mediocre 'S'. Sortof how the 356 market is right now - the normal cars and the 'super' cars don't really have any price differentiation among them. Its the condition of the car that really counts.

Back in 2000, you could buy an early 911S in good condition for $10K, or much, much less for a project car. We'll just have to see...

-Wayne

[Sunroof]

I want to think that with the limited number of older 911's around that the potential buyers may not all necessarily rely on equity loans for purchases. The tie into the housing market may have a bearing on car purchases old or new, but if that guy who just bought his fifth Subway shop, or is selling widgets like crazy wants an older Porsche, he will get an older Porsche. Supply and demand dictates the market and it appears to me that the demand is high and the supply is getting lower. Just ask the 356 owners. If you have an older Porsche that worth its salt and you looking to sell, I would'nt get too frantic about the bottom dropping out of the housing market and affecting a purchase. No need to panic! I am reminded everyday that the rich get richer and more millionaires are created daily. On the contrary, its a great time to own an older Porsche with re-sale in mind. It will be all in the marketing......

Bob
1973.5T

[techweenie]

I'm expecting all non-essential purchases to drop from rising interest rates, dropping RE values and rising fuel prices.

That's one reason I'm not playing in the high end of the clone/collectible market. I think cheaper cars will suffer less -- as is typical in this type of marketplace.

I'm betting people will not pay $25K for a '70 S coupe that needs *everything* next year. But a driver-quality '73 T coupe worth $14K today will probably still be a $12K car.

Somebody on the board commented last year that he'd be just fine if gas was $10 a gallon. But that's beyond naive. Everything is interconnected, and the economy is in a delicate position at the moment. A major disaster -- natural or man-made could tip us into a very deep recession.

[jorian]

Tech is right, everything is interconnected. With gas at $10 per gallon the cost of many other products and services will rise proportionately. Although it is the most common, gasoline is only 45% of total oil consumption. Second and third in use are distillate fuel oil (home heating fuel, industrial power, electric generation, diesel-fueled vehicles, buses etc.) and jet fuel.

Airlines are struggling with current prices. Other industries will also feel the pinch and then we all pay.

[techweenie]

Just to be clear, i personally don't think it's going to $10, but $4 is likely this Summer without major catastrophe.

It's already over $4 for premium in a few L.A. neighborhoods.

[berettafan]

W A R N I N G - - - - VERY UNEDUCATED OPINION TO FOLLOW- - - -

I'm not sure if the market isn't already softening for average-good cars. I've been looking for a reasonably priced driver and for a while NOTHING came up. In very recent times however (say a month or less) several cars have come up at what appear to be good prices.

As a buyer i can tell you my attitude is more of a 'sit and wait for a great price' than it was just a month ago. I might be completely wrong on this (if i am i may end up a 912 or 914 owner instead) but i suspect more great deals are coming up soon!

Erik