I am going to qualify my blog today by saying that this is not a political statement and I know there are a lot of people who will not agree.
In the past year, we have all asked the question how did we (America) get to where we are now, in terms of our economy. I cannot say that it was greed or lack of forsight but here is my take on how we got here and what the journey ahead may look like in the coming months.
When the economy was on an upswing around 2003/2004, a lot of things came easily. Loans, houses, jobs, bonuses, opportunity, all of it was free flowing and didn't seem to have an end in sight. The tech bubble was deflating and everyone was getting their real estate license and making a lot of money selling houses. We didn't look too far ahead. I reeped the benefits when our home appreciated by 30% in one 12month period. Historically, houses appreciate between 4 and 7% annually, so did we think history was rewriting itself? That would be the only explanation for such dramatic growth. At this same time lenders were lacking regulation and allowed for buyers to qualify with 60% debt ratios (i.e. 60% of take home pay went to debt, leaving no room for emergency funds or the extras we all love to indulge in) and houses were appraising at such a high rate that there was no room in the loan for depreciation, a natural cycle in the national housing market since...Forever! Basically we all existed without many rules and loved our delusion that it would not end or even change much. Though buyers were qualifying for loans without a lot of safeguards, they were in such competitive "bidding wars" that they were offering outside their comfort levels often tens of thousands of dollars above list prices. At one point, the buyers said they had enough and pulled their hats out of the ring. Instead of a more gradual shift to a buyers market, we hit a brick wall. I could tell in October of 05, that the market was changing course dramatically. I can tell you I wasn't surprised and I am not completely distressed by this "correction". Unless the market changed, no one was going to be able to sustain home ownership.
The change was inevitable and now that we are a few years into this dramatic correction, I can see a shift back to a more neutral market. We have seen sellers now in the very unfortunate position of short selling or losing their homes to foreclosure. This trend is a result of a harsh correction. Though we do see cycles like this every 7 to 10 years, for all of us this one seems more dramatic. When we add the unemployment to the housing market correction, the situation does seem dire. Are we Iceland? Are we Russia? NO, this is America. The American Dream of owning a home is about just that...owning a home, investing time, money and effort into making that home your own. When the market was leaning the other way, home ownership became something different. People were buying homes to "flip" them and make a quick profit. Though I love profit as much as the next person, I've never been entirely credulous when it came to the notion of a "quick buck". If you work for something you tend to have a different level of respect for the goal at hand. The achievement of that goal is prized and pushes you forward to other goals. We are now back at that place where the achievement of being able to buy a home and hold onto it is special, not a light thing, it is a big deal.
Though it may require more work to sell a home and more work to buy a home, the rules on both sides of the game keep us on track. The rules make the playing field level and protect every consumer whatever side of the table you are on. Yes, it is tougher to qualify for a loan. Yes it takes longer to sell a home today and you might sell it for less than you did 4 years ago. But when did we become afraid of what was difficult? If we just get on with the task at hand, work hard, stay focused, everyone can have what they want. For Buyers, a piece of the dream.. For Sellers, a sound return on your biggest and best investment...For all of us, piece of mind, that we can play by the rules and win! We can be fair with one another and win! That's the road ahead. That is the light at the end of the tunnel that we feel like we are in. See you on the road!
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