Sometimes you just never know where your inspiration comes from. Perhaps it was the fact that it's Tuesday, or maybe it's the rain, meaning I'm indoors all day. But more likely it's my hangover from seeing The Hot Tub Time Machine last Saturday.
So today I thought it would be part whimsical (assuming you appreciate a wry sense of humor), part educational, and mostly retrospective, to take a different kind of look at where we've been to help us better understand where we're at, all in an attempt to help put things in proper perspective.
So if you're game, let's jump in the hot tub and take a trip back in time someplace a little less tawdry than the Kodiak Valley ski resort circa 1986, and look at how life and real estate looked in both America and right here in Folsom California.
Our first stop is Spring 2001.
Bill Clinton is winding down his Presidency, Duke beats Arizona for the NCAA basketball championship, Gladiator is named best picture, and the national unemployment rate is only 4.8%.
Here in Folsom things are looking rosy, and unlike the stock market meltdown of March 2000, the term irrational exuberance is yet to be associated with the local or national housing markets.
Our population is 56,477, there's no such things as stage three water rationing, wild turkeys and squirrels have yet to take up residence in your yard, new homes are popping up faster than weeds in the driveway, and you can still make a left hand turn out of the Arby's parking lot onto East Bidwell Street because: A) there is an Arby's and B) E. Bidwell Street isn't the new Sunrise Boulevard it will soon become.
Times are good, especially if you own a home, or build them for a living. It's good to be a seller, a home builder, or a title company, not so good if you are looking to buy your first home. Multiple offers are the norm and if you don't offer at or above the list price you're toast. Everybody's employed. The future's so bright you gotta wear shades.
The latest get rich quick approach involves marching into the new home sales office, putting your John Hancock on a contract, waiting six months to have your new home built, (never intending to live in it), then selling it the day after you take title and pocketing $50-75,000.
Real estate is the rage.
The ranks of the Sacramento Association of Realtors are rising faster than housing prices. In numbers never seen before, school teachers, car salesmen, soccer moms, you name it, they're coming in droves, leaving behind their former professions, or ones they never had, all looking to get in on the new gold rush, selling houses for a living.
In the resale market there are 183 homes listed for sale with nearly 50% of the monthly housing inventory selling in only 26 days on the market. The median home price sits at $272,000 and by April 2002 will be at $304,000. The average price per square foot is $148 and rising. And there's only 2 months of inventory on the market meaning that if you're a buyer you'd better be on your toes.
Optimism is unbridled and running loose in the streets.
In fact, everyone is having such a good time playing real estate Monopoly and counting their profits that we figure this is a good time get out of town and into the hot tub, recalibrate, and head off to 2005 to see just how much money we'll all make and how far this crazy market ride will take us in a few years time.
Fast forward to May 2005. By the time we towel off here's what we see.
George Bush is just beginning his second term as president. The world is a much different place after 9/11. A string of hit primetime shows, including a new show called Lost, make ABC the ratings leader. Brad and Angie are the new couple. The U.S. unemployment rate is still a reasonable 5.1%.
Here in Folsom our town is growing. The population has reached 67,000. There's a new community called Empire Ranch bringing with it over a thousand new homes and Folsom's first golf course. There are over 17,000 detached single family housing units, up nearly 3,000 from 2001. There's even plans for a new mall. It's the height of the new real estate gold rush.
According to CNNMoney.com Folsom is ranked #34 out of the top 100 places to live in the United States. And why not? Especially if you own real estate.
In the resale market there is a shortage of homes to be purchased. With only 143 currently listed homes for sale, buyers are facing an ominous task of finding a home they like, then engaging in all out hand to hand combat to get their offer accepted. The time to sell a house is a ridiculous 20 days, with most selling at or above the asking price. When we look up it appears that buyers are literally falling out of the sky, strewn everywhere, looking, begging, pleading for a seller to accept their overprice offers.
The median home price is a staggering $500,000, up 39% since we left 2001. If you're counting, and we are, the average price per foot for a Folsom home is now at $256, up 42% from 2001. Living and owning real estate in California has made people some of the richest in America, on paper at least.
As we look around we see a euphoria that is blinding to all but a few naysayers. The majority believe there is no end in sight, or is there?
The warnings of trouble are beginning to appear, but apparently not many people are willing to take notice.
Numerous economic and cultural factors are causing a growing number of economists to use of a new term, "housing bubble." Once the internet and TV talking heads pick it up panic starts to set in.
Freddie Mac's chief risk officer warns that Freddie Mac is financing risk-laden loans that threaten their financial stability and that these loans "would likely pose an enormous financial and reputational risk to the company and the country." Others warn of the risks posed by all the sub-prime mortgages being doled out and the likelihood that these risky subprime investments could cause a major economic meltdown if people can't make their new higher payments once these loans reset in a few years.
In California, home prices have escalated to an historic high of 9 times the median family income, taking affordability levels to all time lows. Buyers are being priced out of markets. Market data is indicating sales are slowing and inventories are rising. All signs pointing to a correction in the housing market.
To compound matters, the majority of consumer spending is being fueled by the related refinancing boom, which, unlike in years past, is primarily being done not to lower payments but to pull cash out to finance lavish lifestyles. Once values begin to fall, and they look like it's only a matter of time before they do, this will stop people from robbing Peter to pay Paul. The clouds are gathering for the perfect storm and it looks like a pretty good one. Maybe it's time to jump back into the hot tub and get the heck out of here before things get really bad. So in we dive and set the controls to take us back home, Spring 2010.
Wow, we hardly recognize the place. It's a scene right out of the Planet of the Apes. I can't help but think of Charlton Heston..."You Maniacs! You blew it up! Ah, damn you! God damn you all to hell!"
Here's what we see.
Recession.
Everything has changed.
Unemployment has doubled to nearly 10% nationally, California is mired in red ink, workers are being furloughed, and California's jobless rate hovers around 13%.
The median Folsom home price now sits at $351,000, that's a staggering 30% drop since we left 2005. The average price per foot for a Folsom home has fallen just as precipitously all the way to $176. That's a whopping $80 a square foot difference. And just like the Apes, Short Sales and Bank Owned Homes now rule the landscape. Banks have failed, industry leaders have been imprisoned, national lending institutions Freddie and Fannie have been taken over by the government. It's financial Armageddon, and no one is immune.
The current administration, so desperate to gets things turned around, are offering tax credits to homebuyers, eliminating taxation on forgiven mortgage debt, and all but putting a gun to the head of loan servicers to try and get them to stop foreclosing on delinquent home owners. It's a mess of historic proportions.
Here in Folsom nearly 50% of all homes listed for sale are distress sales. Vacant homes are the norm, not the exception. Family homes once cared for so lovingly sit forlorn, dead lawns, many stripped bare of the amenities that once made their owners so proud. A last sad act, equal parts desperation, equal parts anger.
Only 17% of homes available to be purchased are selling, mind numbing compared to the 83% in May 2005.
Those that are lucky enough to find a buyer are willing to deeply discount their price to do it. Sellers, once so full of hubris, now willingly welcome all but the most abrasive offers. Now, it's not so much how much they've lost, but how much they'll save by selling now rather than holding out hoping for a turnaround.
With all due respect to Gordon Gekko, greed has not been good.
Now, as we move into our sixth year of the housing pullback, we realize that a bright future is not guaranteed. Today's questionable decisions can turn into tomorrow's problems. The great thing about history is that it offers valuable lessons and the chance to learn from mistakes to create a better tomorrow. Hopefully we've learned plenty.
Much has been lost, but at least we still have the squirrels.
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