Real estate is a key component of the U.S. economy. Aside from providing basic shelter, it is a commodity that consumers desire to purchase and a mortgage is used to finance the transaction. Yet, it was the environment in 2008 where an industry as we knew it offered slim prospects of recovery.
Fast forward to 2018, recovery is obvious. home prices continue to climb to record levels leaving many to wonder if they will ever be able to afford a home, let alone experience the “American dream?” At the same time if must not be discounted that millions, for various reasons lost homes. For them, then and now home-ownership represents the biggest transaction they will complete in their lifetime. Likewise, it represents the biggest financial asset.
For some 2008 seemed like a lifetime ago. No doubt it was a scary time especially for those who were part of the economic meltdown. Cash was tight, employment or the ability to earn a living was in great jeopardy, homes which were treasured started disappearing in record numbers – like never seen before. Many were lured into the notion property appreciation was constant and even though they may have bet on risky mortgage products, they felt confident they would be able to refinance out of any calamity. Political leaders labeled the period as one not seen since the great depression of the 1930’s.
Here is a list of lenders who imploded starting in 2006
Subprime blamed
The crisis erupted in 2008, however signs were simmering that something might be amiss as early as 2005. Interestingly it was a common refrain for the very political leaders and even industry leaders to target the culprit as subprime lending. The problem with that assessment is it is incorrect, at least from a practical definition.
Prior to subprime coming into the mortgage vernacular in the mid 1990’s, most mortgages were considered prime. You had to fully qualify, including for some with what appeared to be exhaustive documentation. . Your credit was not required to be perfect as long as any blemishes could be documented and explained.
Sub is a suffix and means “less than” or “below.” Unfortunately, some would have you believe it meant bad credit, inferior housing or something that was substandard. No doubt many who obtained mortgages were in that population but there was a good percentage who in fact had good credit as well as good property.
Alternative mortgages
A more reasonable understanding is defining subprime as synonymous with alternative. In other words, subprime mortgages merely meant the borrower could not qualify for a prime mortgage. As stated, there were millions of borrowers whose credit was above average and the alternative mortgages became a solid vehicle for them to obtain affordable mortgages. Why was an alternative mortgage necessary? For some, they could not fully document their income via traditional methods. However, they had just as much money in their bank accounts as normal borrowers and their credit was just as solid. Lenders recognized this challenge thus alternative mortgages were born and the market took off.
As lenders created alternative mortgages they became part of the overall subprime population. However, it did not have the negative connotation subprime became labeled. That is why blaming the crisis on those on the fringes with credit issues appears an easy explanation but that short-changes the reality of the subprime market.
There were many reasons which led to the crisis that erupted in 2008. Experts have suggested factors germinated as early as 2006 and the signs of a downfall was apparent. The only problem was many were in denial and for a good chuck of that population it was simply too late to recover.
“I’ve been in this business a long-time and have trained real estate professionals all over Southern California. I’m telling you, the market is about to crash! The late Jerry Timpone, 2006
In 2008 the average home price in Southern California was $429,000. However, it must be noted that due to the crisis millions of homes were being snapped up for far less (via foreclosure and other issues which left many homeowners fleeing their properties).
Compared to today’s average home price of over $600,000, even $429,000 seems like a steal! 2008 was a turbulent time and compared today, it is a thing of the past. During that ten-year period many who held onto their homes have been able to secure a more fixed payment mortgage, thus the surprises of a fluctuating mortgage which was popular during the early to mid-2000’s has been mitigated.
Companies/Business were imploding as we Cities
As indicated real estate, specifically the mortgage sector is important to our economy. As the implosion of businesses picked up steam, the residual effect found cities and communities in great peril. They too were dealt blow after blow as neighborhoods became decimated, thus reducing taxes cities need to operate.
While economic challenges are not the main concern as it was in 2008, today the primary concern is having enough income and down payment to snag a property. Of course, even those who may be in a qualifying position are contemplating the definition of a “fixer-upper” or considering moving outside of the metropolitan area, which years ago would have been unthinkable.
So, average prices come and go. Economic conditions are constant but looking back ten years is important to recognize the cyclical nature of real estate and realizing that most things are relative. The take-away is if $429,000 was a jolt, and $600,000 redefines sticker-shock, it is a good bet prices will go higher before they go lower.
As for mortgages and looking back ten years, it is a simple equation; people will always have the need for shelter and a good many will be lucky enough to become homeowners. Mortgage lenders will always look to satisfy those borrowers who are seeking affordable financing because assuming everyone has at least twenty percent as down payment and stellar credit would depress the market to a point that is not reasonable. The trick, like any consumer purchase is to properly assess your situation so that you are not forced into a mortgage or a predicament which has the remnants of the 2008 meltdown.
Single Family Residences a 10-year look-back
| Year | Single Family Residences | |||||
|---|---|---|---|---|---|---|
| Los Angeles | Orange | Ventura | San Bernardino | Riverside | San Diego | |
| 2018* | $629,500 | $766,000 | $625,000 | $338,900 | $379,800 | $623,900 |
| 2017 | $613,200 | $750,400 | $605,200 | $326,600 | $370,500 | $607,500 |
| 2016 | $569,100 | $711,300 | $575,200 | $297,800 | $344,200 | $565,000 |
| 2015 | $528,900 | $681,800 | $540,700 | $273,900 | $320,600 | $529,600 |
| 2014 | $486,700 | $643,000 | $512,000 | $255,000 | $300,200 | $492,300 |
| 2013 | $456,500 | $620,000 | $486,000 | $230,700 | $274,900 | $468,500 |
| 2012 | $389,200 | $535,100 | $419,900 | $185,200 | $221,700 | $403,300 |
| 2011 | $363,100 | $494,800 | $389,100 | $168,800 | $201,100 | $370,300 |
| 2010 | $391,300 | $524,300 | $419,500 | $178,300 | $213,700 | $392,800 |
| Year | Single Family Residences | |||||
| Los Angeles | Orange | Ventura | San Bernardino | Riverside | San Diego | |
| 2009 | $400,400 | $539,400 | $427,400 | $184,500 | $214,300 | $401,800 |
| 2008 | $429,200 | $553,700 | $456,500 | $227,300 | $254,800 | $422,100 |
| 2007 | $525,300 | $629,200 | $539,700 | $328,700 | $351,900 | $502,700 |
| 2006 | $582,200 | $718,700 | $625,800 | $380,200 | $425,800 | $559,200 |
| 2005 | $566,000 | $715,300 | $636,500 | $364,700 | $422,200 | $572,900 |
| 2004 | $481,600 | $648,000 | $582,000 | $298,500 | $366,700 | $565,300 |
| 2003 | $376,300 | $518,100 | $461,600 | $216,400 | $280,500 | $448,100 |
| 2002 | $303,700 | $424,700 | $378,000 | $174,300 | $227,700 | $373,100 |
| Year | Single Family Residences | |||||
| Los Angeles | Orange | Ventura | San Bernardino | Riverside | San Diego | |
| 2001 | $253,800 | $361,000 | $314,500 | $150,700 | $196,100 | $312,400 |
| 2000 | $227,500 | $322,700 | $283,600 | $135,500 | $176,600 | $276,000 |
| 1999 | $204,000 | $285,400 | $255,300 | $124,400 | $160,900 | $240,000 |
| 1998 | $185,400 | $262,900 | $229,700 | $116,400 | $146,500 | $211,100 |
| 1997 | $171,000 | $230,500 | $204,200 | $111,000 | $135,000 | $188,100 |
| 1996 | $164,000 | $214,900 | $195,100 | $109,800 | $129,900 | $177,100 |
Condominiums / Co-Ops
| Year | Condominiums / Co-Ops | |||||
|---|---|---|---|---|---|---|
| Los Angeles | Orange | Ventura | San Bernardino | Riverside | San Diego | |
| 2018* | $528,800 | $505,200 | $444,200 | $336,800 | $278,700 | $439,000 |
| 2017 | $513,300 | $493,700 | $424,300 | $329,100 | $271,100 | $426,200 |
| 2016 | $471,200 | $456,100 | $399,200 | $300,100 | $257,500 | $391,900 |
| 2015 | $443,300 | $433,100 | $373,100 | $280,400 | $250,000 | $361,000 |
| 2014 | $411,200 | $407,400 | $349,200 | $263,100 | $240,600 | $334,500 |
| 2013 | $386,900 | $387,700 | $328,400 | $238,800 | $227,400 | $314,400 |
| 2012 | $325,000 | $316,600 | $273,800 | $185,500 | $187,000 | $259,700 |
| 2011 | $312,200 | $300,000 | $259,500 | $178,900 | $174,200 | $243,500 |
| 2010 | $339,400 | $325,800 | $284,900 | $195,800 | $193,700 | $269,300 |
| Year | Condominiums / Co-Ops | |||||
| Los Angeles | Orange | Ventura | San Bernardino | Riverside | San Diego | |
| 2009 | $357,100 | $341,200 | $303,200 | $202,800 | $205,500 | $278,200 |
| 2008 | $371,300 | $363,000 | $328,700 | $231,200 | $225,900 | $300,500 |
| 2007 | $434,700 | $421,700 | $394,500 | $313,300 | $283,600 | $352,400 |
| 2006 | $483,200 | $482,200 | $464,200 | $362,900 | $346,100 | $393,200 |
| 2005 | $474,400 | $480,800 | $473,700 | $356,300 | $349,300 | $417,300 |
| 2004 | $413,500 | $440,500 | $433,200 | $301,300 | $301,300 | $418,400 |
| 2003 | $320,500 | $348,700 | $346,100 | $221,800 | $227,300 | $334,900 |
| 2002 | $260,600 | $283,100 | $281,300 | $175,400 | $188,400 | $276,600 |
| Year | Condominiums / Co-Ops | |||||
| Los Angeles | Orange | Ventura | San Bernardino | Riverside | San Diego | |
| 2001 | $216,400 | $239,800 | $232,400 | $151,000 | $169,800 | $228,000 |
| 2000 | $189,500 | $208,800 | $204,700 | $136,800 | $149,900 | $193,800 |
| 1999 | $170,400 | $181,800 | $181,300 | $127,300 | $130,300 | $162,700 |
| 1998 | $154,700 | $166,100 | $166,000 | $117,600 | $117,000 | $143,400 |
| 1997 | $141,100 | $146,600 | $152,000 | $111,500 | $111,700 | $129,500 |
| 1996 | $136,800 | $137,900 | $145,300 | $108,500 | $106,500 | $122,600 |
* 2018 Median price is for May 2018
N/A – Data not available from source
See also Median Home Prices by Zip Code in Los Angeles County
Note: Movement in regional sales prices should not be interpreted as measuring changes in the cost of a standard home. Prices are influenced by changes in costs and variations in the characteristics and size of homes actually sold.
Source: Data derived from Zillow Research.
Postscript
The housing crisis was an important historic event. Fred Thomas, III tags himself as a “student” of the mortgage industry and speaks with credibility having been employed at Countrywide Home Loans, IndyMac Bank and Bank of America. He is currently working on a book which takes a look at the rise and fall as well as the importance they played and the development of the industry.
Thomas Reports 