Walter Stabler

Financial Conditions in 1907 Affecting Real Estate - Mortgages in Panic Months - Effects of After Panic Money Rates - Bonds Versus Realty - No Money Lost on Mortgage

The enormous development and building operations in 1905 and 1906, coupled with other conditions, resulted in higher rates for money. The imposition of the annual mortgage tax in 1905 raised the rates of interest about a half of one per cent. But, what had more to do with higher rates of interest than anything else was the enormous demand for money for every kind of investment. Five and a half and six per cent money became a regular thing, and it was supposed this would last for a very short time only, because it did not seem possible for it to continue. But it did last because of the enormous demand for money. About the time we all thought money would ease up - after the recording mortgage tax law was enacted - we found that this did not seem to help the situation; money became stiffer and stiffer, and in the latter part of 1907 the panic came when money was almost unobtainable. The life insurance companies, savings banks, trust companies and title companies all seemed to shut up; they stopped lending, because they did not have it to lend - that was the whole story. The savings banks during the early days of the panic put the 6o-day clause in operation, so that they could not have a serious run, and they began to call their mortgage loans as a matter of self-protection, because they might be called upon to pay all their depositors, and the securities they held had depreciated in some cases ten to twenty points. They could not be blamed for it. Those demands had to be met, and it was difficult to meet them.

* Extract from paper read before Y. M. C. A. Real Estate Club, February, 1909.

The life insurance companies were called upon for almost the full amount of their income to meet policy loans, which their policy holders had a right to demand, and this took them entirely out of the lending market.

The trust companies were having troubles of their own; they had no money to lend daily borrowers; individuals who had money, hoarded it away for some good opportunity to buy things cheap.