Realty Views
Ten Years After The Crash
By Terry Ross
It was 10 years ago this month that some of the more dramatic events in this country’s financial history finally came to a head to produce what has been known as the Great Recession – and the housing bubble that was one of its largest contributors.
The events of September 2008 had been in the works for years because of government-inspired easy lending regulations and skyrocketing home values that continued unabated even though jobs and incomes did not support it. The house of cards really crumbled when Wall Street giants Lehman Brothers and AIG declared bankruptcy during that month. The government eventually bailed-out the banks, but for much of the middle class, their jobs and their homes were gone. More than eight million Americans lost their jobs – and during the 10-year period, seven million lost their homes.
Now, with a decade of losses and rebuilding, where is the economy? Where is housing? Are we back?
There are no easy answers to these questions – despite whatever government or corporate hype might be thrown around. Many of the answers depend on where you live, what you do and frankly, how lucky you may be in many instances.
We do know that the homeownership rate was at nearly 70% in America in 2006 – just before the recession – and fell for almost the next decade. Today the levels are down to those of the mid 1980s at around 64%. Black homeownership rates are at 50-year lows and the homeownership rate for young people – under 44 years of age – was 7 to 10 points lower last year than in 2006.
In 2011 alone, one million Americans were foreclosed upon and thrown out of their homes. In some markets, prices have rebounded to pre-recession levels or higher – but not in all of them. In places like Denver, Dallas and San Francisco, they are at higher levels than ever before. In metros like Chicago, Detroit, Las Vegas and New York, home prices are still lower than in 2006. According to MarketWatch, more than 1.3 million American homeowners were still underwater at the end of last year – more than double the number before the bubble bust.
But the real driver of these trends is not as much due to tighter lending standards, more regulation or demographic trends as it is to what has happened to the jobs market over the last decade.
Since mid-2017, the government reports that the unemployment rate has hovered below pre-recession levels and in August was at 3.9% – the lowest since 2000. But looking beyond the numbers, many American are not counted in the unemployment rate because they have stopped looking – and the better paying jobs have disappeared in many industries – leaving people no choice but to work for much less than before the recession. As an example, there are four million fewer manufacturing jobs than in 2000 and 33,000 fewer in coal mining – and Wall Street jobs have declined as well. Many white-collar jobs now go to younger workers who employers feel they can pay less for the same tasks. Automation is taking away jobs across many industries and specialties – like banking – as industries try to replace an employee who makes a salary and gets benefits with a smartphone app or a computer program.
Many younger workers are saddled with more student loan debt and consumer debt has surged from $2.7 trillion before the recession to nearly $4 trillion today. It shows that for much of the population it is just a matter of trading mortgage debt for other kinds of debt today. The fact that homeownership is lower and homeowners are staying put shows that they feel less confident about their financial situation than a decade ago. And these people are not investing in the stock market, either. Before the recession 62% of Americans owned stock – now only about half do.
One recent study showed that the wealthiest one percent of Americans owned nearly 40% of the nation’s stock market wealth, which coincides with the feeling of many on the street that the recovery seemed to help those at the top more than the middle class.
Before the financial crisis, the number of commercial loans to small businesses – the traditional borrowing option – continued to grow at double-digit rates and was a driver of the entrepreneurial economy. This came to a virtual standstill during the financial crisis. In fact, loans by large banks to small businesses from 2008 to 2011 were practically nonexistent.
Even when the economy started to recover in 2011 and 2012 there was not a concurrent recovery in bank lending to small businesses as the number of small business loan originations fell by half due to credit constraints.
Moving forward, one prediction by John Burns of the John Burns Consulting Group in Irvine pointed out that the cause of the next recession will not be due to housing – since the levels of construction have been low over the last 10 years and the stringent mortgage documentation that has been adapted.
Most likely, just as in the past, there will be several issues that determine when and how bad the next recession is, and how big a role that housing and real estate plays in it.
(Terry Ross, the broker-owner of TR Properties, will answer any questions about today’s real estate market. E-mail questions to Realty Views at terryross1@cs.com or call 949/457-4922.)