It’s now 2018, exactly ten years since 2008, which was a seminal time in the world of any real estate agent, lender, or homeowner – and not for a positive reason; 2008 was when we saw the housing market implode.
Over the ensuing months and years, we saw not only the mortgage, real estate, and housing market completely crumble, but fault lines in the bedrock of our whole economic system. From Wall Street to Main Street and definitely for every homeowner, there really weren’t many people in America who weren’t negatively impacted by the Crash of ’08 and subsequent Great Recession.
For those of us who were making a living selling real estate or home loans, the feeling at the time is best described as showing up to work every day only to be punched in the gut. And it only got worse the next day. And the next day.
Thank goodness, we’ve certainly come a long way from those dark days in the ten years since. So, to both remember, celebrate, and serve as a reminder of caution, let’s take a look back at the state of housing and the economy circa 2008:
On the morning of August 17, 2007, America woke up to front page news that Ben Bernanke, the Federal Reserve Chairman, had decided to lower the discount rate – a barometer of lending between banks and the Federal Reserve that essentially set the pace for the cost of money, a whole 50 basis points, from 6.25% to 5.75%,
As the rubble from the mortgage bomb was still smoldering, we almost immediately sought answers as to who was responsible. In March of 2007, Senator Chris Dodd, who served as Chairman of the Banking Committee, called for hearings to find out what happened. He called the top executives at the nation’s five largest subprime mortgage companies onto the carpet, demanding that they testify and explain their lending operational procedures that could have led to such a mess.
But answers remained elusive, and we had bigger problems as the economy slid into a freefall, starting with the mortgage market and then the housing industry.
In 2008, only 4.12 million homes sold, which is a shockingly low number considering how hot the housing market had just been 12 or 24 months previously.
It took until 2012 to see a significant increase in the number of homes sold, with 4.66 closed transactions that year.
By 2013, we broke the 5-million mark once again with 5.09 million homes sold, and by 2018, the market was doing a robust 5.5 million sales per annum.
But the decade between the dark days of 2008 and the new and improved housing market of 2018 sure felt like 100 for those who bore the brunt of the real estate and mortgage collapse.
In fact, no sector of the economy – or nation in the world – was spared its fall from grace.
With the Dow Jones Industrial Average losing 33.8% of its value (more than a third!) in 2008 alone, the recession was officially upon us.
However, when the U.S. GDP (Gross Domestic Product) sank by 0.8% in 2008, it was just a warning sign, as it fell like a stone by 3.1% in 2009.
Over the worst 18 months of the financial storm, from December 2007 to June 2009, the U.S. economy lost about 8.7 million jobs.
In that time, the U.S. unemployment rate skyrocketed to over 10 percent, which was the first time it had hit double digits since September 1982.
Very quickly, we saw some of the biggest banks, investment houses, and even government institutions fall like a house of cards. Both Freddie Mac and Fannie Mae had to be taken over by government conservatorship. The U.S. Department of Treasury bought a mind-numbing $100 billion in preferred stock and mortgage-backed securities to stabilize the markets and inject confidence. But that didn’t stop Lehman Brothers from filing for Chapter 11 bankruptcy protection, which was the largest bankruptcy case in American history.
In all, American households saw $16 trillion in net vanish into thin air through the greatest American financial crisis since the Great Depression.
Of course, with millions of homes in foreclosure and the market swollen with unwanted inventory, building of new construction came to a screeching halt. (Levels of new housing permits and starts fell off the chart in 2008 and 2009, but rebounded nicely by 2013, with 1.105 million new units that year.)
As the housing bubble burst, a domino effect ensued, with more and more homeowners and mortgagees defaulting
By September of 2008, 3% of home loans in the entire nation were in the foreclosure process (which means at least 90 days – or three payments – late!). That represented an increase in foreclosures of 76% over just the previous year. Add in 7% of mortgage holders that were at least one month late, and an unfathomable 10% of homeowners with a mortgage were missing payments or in the process of losing their homes.
In California, housing prices fell 42% from 2006 to 2011. In some areas, like the fastest-to-grow and fastest-to-fall Sacramento, Stockton, Modesto, Bakersfield, Fresno, etc., the price drops were even more profound.
With people losing homes and forced to start over as renters by tens of thousands, the homeownership rate plummeted. Before the crash, our homeownership rates were at all-time highs (which may have had something to do with it!) of roughly 68%. After the crash, homeownership rates fell to a 30-year low of 62.7%. However, that number is probably still healthier than in reality because so many homeowners were still in their homes for months or even years while defaulting and going through foreclosure.
In all, 2008 was just the start of an economic landslide that almost ruined us. For those surviving and thriving in today’s reenergized economy, we can only look back to those times with relief and a stern commitment not to let it happen again!