What we have witnessed in this recent housing crisis is plunging home values, rising foreclosures, and a sinking economy. A rapid rise in unemployment has been a major cause in the growth of foreclosures hitting the market. More people losing their jobs mean less money to pay loans for houses, which results in defaults and foreclosures on their property.
The real estate industry in the early years of this millennium was looked at as a manifest destiny. Whether you were building the house, drafting the mortgage, or simply the buyer or seller in a transaction the market conveyed that it was going to generate income for you one way or another. It was considered a boom that would not bust. How could it bust? Between 1999 and 2005 some cities were seeing home prices increase over 150% in coastal cities such as Fresno California, and Miami Florida. With the growing number of home sales came an obvious rise in the employment of the real estate sector. By October 2005 the number of employees in the real estate credit and brokerage sector was at 504,000. That is nearly a 70% rise from the employment number of that sector in January 2000. Interest rates would dip, phones would ring and mortgages would need refinancing. Brokers were seeing their salaries grow exponentially for just filling out new refinancing paperwork.
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Another growing industry in the first part of the decade was real estate development. Jobs like land surveyors and general contractors were filled by over 700,000 Americans by the middle of 2005. In 2005 over 1.2 million new homes were sold which was double that figure from ten years earlier. In 2005 residential housing made up 16 percent or $1.9 trillion of gross domestic product and was the country's largest single sector.
All of this growth was sending our housing economy steam rolling towards a collapse. Home prices were reaching their highest point, the market for new houses was saturated, and too many loans were leveraged on bad credit. In basic terms inventory became high, and demand was down. With demand plummeting property values of homes just bought were dropping, and mortgages were going upside down, where value of homes is less than what is owed on the mortgage.
When the housing market finally snapped everything came with it. 2007 alone saw a 13% decline in home sales, and 6% decline in the national median property value. This was only the beginning. Companies that had issued the subprime mortgages were the first to go. In that same year 25 lenders declared bankruptcy. With the lack of demand for home sales jobs began to disappear. Those industries that were responsible for writing the refinancing papers, and streamlining new home production were brought to a halt, and a growing number of Americans were forced to hit the unemployment line. Other industries suffered tremendously too. With the sharp drop in home purchases and home equity loans companies like Home Depot, and Lowe's also saw big drops in revenue because of dwindling new home sales.
Some cities in the United States have not suffered as much as others. While unemployment is up everywhere there are some places that have rates lower than the national average. The coastal cities like Miami with the skyrocketing home prices were hit the worst when we entered the recession. The middle of the country and states like Texas did not boom with the rest of the housing market; however they are not feeling the effects of the bust as bad. Geographically these areas have a large amount of undeveloped land which kept the subprime lenders out and left the city and its constituents less leveraged then other parts of the country. Home prices in some cities have even been able to grow while other parts of the country were hitting rock bottom. San Antonio Texas had over a 3% gain in home prices between 2006 and 2009.
Early indicators in 2010 show that unemployment is still on the rise, however some states like Virginia and Utah were able to keep growth around 2.5% for 2009, while other states grew by over 6%. In the coming months those cities providing job growth will be the ones to see their real estate economy rise from the dead. Cities that can keep unemployment below the national average will be able to at least keep median home prices steady, and eventually help us climb out of the economic recession.
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