With so much negative news around us, I thought it might be nice to see some facts that may help you keep some perspective on where we are when people start throwing around the “Great Depression” comparisons.
- More than 1000 banks closed in 1930, yet only 14 banks have been taken over in 2008.
- There are 76 million households today in the US that own their home and of that, 24 million are owned free and clear — no loan at all.
- 52 million homeowners have a mortgage and 97.2% are NOT in foreclosure and 98.3 are current on their payments.
- There is about $11.7 trillion currently held in money markets, treasuries, CDs, and cash — this is higher than the accumulative debt of the whole country.
However, because I should be a realist and not Pollyanna about what we are facing, it helps to understand how we got here. For each decade, we can see how many homes were sold both in the peak year and the average for the whole decade:
Peak # Homes Sold Average Homes Sold
1970s 3.9 million 3 million
1980s 4 million 3.3 million
1990s 4.9 million 3.9 million
2000s 7.1 million 5.6 million
In 1999 there were a series of laws to expand home ownership beyond where it had historically been for generations — thus the spike in volume of homes being sold. It became an entitlement, not a privilege. Instead of working hard to save money and earn the position to own a home, it became somewhat of a gift due to poor lending practices. Furthermore, people became used to refinancing their homes to support an excessive lifestyle. We moved away from a tradition that required a person to work hard to save 20% as a down payment to buy a home.
We’re having a necessary adjustment to housing prices so they will come down in line with where they should have been “naturally” had we not made financing changes and incentives in the early 2000s. It is likely to over-correct, which means a buying opportunity will be created for those who need to and can afford to buy a home.
To deal with the excesses of the 2000s, we’re now facing “distressed sales” — short sales and foreclosures, because:
- 40% of the 7.1 million sales in 2005 were non-owner occupied (investors, second homes, and speculators).
- 40% of all foreclosures are non-owner occupied.
- Over 20% of homeowners with a mortgage owe more today than their home is worth.
- People are living longer and with continued advances in medicine for the decades to come we will all need a place to live out much longer lives.
- Population is growing — People are still having babies. Immigrants are still coming to America for education and jobs.
- One baby is born every 7 seconds; one person dies every 12 seconds; one immigrant comes to the US every 29 seconds; which means the US population grows by 1 person every 11 seconds, according to USCensus.gov.
- On February 11, 2008, the Pew Research Center published their projections for U.S. population growth through 2050. In the last 40 years, the U.S. population has risen from 200 million to
300 million people. Pew estimates that the population of the U.S. will reach 438 million by 2050 or an increase of 48% over the population in 2005.
- Major development loans have been drying up so new construction is slowing.
- September sales in California were up 68% over 2007, 51% of which were distressed sales.
- Average supply of homes was 11 months in January and it is now down to 9.9.
- We will end up with a shortage of housing in 3 years at this pace.
The government is throwing HUGE money at the economy right now. The new administration coming into the White House is planning to invest in creating jobs and stabilizing housing. I’m sorry that most of us have been trained to have short-term vision — only being able to see a couple months into the future. I agree that it looks pretty cold and dark if that’s as far as we can see. However, if you’ll adjust your “future glasses” just a little and see out a couple of years I think you will see that the seeds of opportunity are being planted right now.