What Caused the Housing Crash – And What to Do About It

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I don’t know about you, but personally, I’m getting pretty tired of hearing news reports about how bad the housing market is.  And it really gets me ruffled when they scare buyers away from buying a new home – as if this wasn’t the best time in our lifetimes to invest in a new home!

I understand that times are tough for most of us.  I feel it just as much as most of you.  And, sadly, I have good friends who have lost their companies because they weren’t prepared for the market changes that we’ve experienced in the past three of four years.

So, I’m not being insensitive – I’m just ready for somebody to start talking about solutions instead of rehashing the problems over and over again, confusing buyers and de-motivating the rest of us into a false belief that ‘there’s nothing we can do; that we might as well give up.’

I refuse to believe that  ‘we’re all doomed’ – and I don’t think you should believe it, either… And here’s why:  there are today, right now, in just about every market I’ve seen – builders, Realtors, and remodelers that have adjusted their marketing and sales strategies and are realizing huge success – I’m talking about record-breaking sales and profits… and in some of the “worst markets” in the country – FL; CA; MI…

What are they doing that’s so radically different… And, most importantly, how can you do what they’re doing… and get the same results they’re getting?

Through the BuilderRadio faculty we’ve been able to piece together some ‘market truths’ that we want to share with you in this series of three short videos.  But, in a nutshell, these super-successful builders understand three things:

1. The factors behind the current ‘housing recession.’
2. The real needs families and potential buyers are facing today…
3. The fears that buyers have… and how to turn those around and inspire confidence, even excitement, at the opportunity to buy now.

Let’s start with #1:  What are the factors behind the current market?

Go back a decade ago to the late 1990s and early 2000s.  Economists were worried that a recession was about to hit but they thought they could keep it from happening by propping up the largest pillars of the economy – the auto industry and the housing industry – to plow through the threat.

They focused on creating the desire for more new homes – bigger, better homes that would keep 100,000s employed and the economy moving.  Government programs made mortgages more affordable and available, and Housing became the Hero of the American Economy!

New home construction single-handedly buoyed up the entire economy and kept it from stalling out.  As a result, home prices took off as the entire country ‘bought in’ to the American Dream of owning a brand spanking new home, whether they could actually afford it our not!

Over a four-year period — from February 2002 to February 2006 — the Case-Shiller index increased … about 50 percent.

The market was responding according to “irrationally optimistic beliefs about future housing price appreciation.”  The Wall Street Pit.com

“But low interest rates, favorable home legislation and poor oversight, and a desire to make every American a homeowner led Washington and Wall Street down a destructive path.”  Motley Fool – April, 2010

What caused the housing bubble?

1. Lax Lending Standards – unqualified borrowers
2. Creative lending – subprime; adjustable, 0-interests, 0-down payment…
3. The Growth of the Secondary Mortgage Market
4. Big Builder Buy-In

Greed, a lack of regulation, oversight and enforcement, and shortsightedness – some blame banks, some blame economists, everyone blames government.  It was all of the above; builders, too.

The ‘bubble’ burst when the fuel (money) was no longer there to support it.

Homeowners who had been just barely able to pay their mortgage in good times were now defaulting, prices were falling, home values were tumbling… Giving us the market and economy we are experiencing today…  A deep dive in housing prices and values.

But, think for a minute:  Did the houses change?  Did their real value decrease?  Did people need them less?  Have people decided to stop living in houses?  Have families stopped growing?  Have people stopped immigrating to this country?  Are older homes somehow better than new homes now?

NO to all the above.

What has changed is the prices of your homes are more affordable now than ever…

Mortgage rates are still outstandingly low… but harder to get.  When I built my first house in 1979, a typical deposit was 20%.   What is it today?  20%.

Yes, buyers now have to demonstrate a financial stability and offer reasonable assurance to a lender that they can actually pay the loan and thus afford the home.

Where does that leave us – those of us who market, build, or sell homes?

Greater need; smaller market of able buyers.

Confused market where appraisals seem to favor the older, existing homes. (that’s what appraised by.)

You’ll hear that REOs and Short Sales erode market…  Don’t believe it; it’s simply not true.

New vs. Old:

• Cost More – pound for pound, NOT feature for feature!
• Little initial Maintenance
• Warranty
• Choices
• Energy Efficient
• Longer life

As bad as the economy is, are people still buying new cars instead of used?

Automakers do a good job of creating value perception.  The value is there, they just know how to get their point across.  You don’t see Ford crying about how cheaply you can buy a used car – they don’t care; it isn’t new.

Facts:  There is a market.  Confused, timid, gun shy, but real.

The Good Old Days of ‘blind optimism’ are gone… for at least another decade, leaving instead something I think might be better: a reason for ‘Sighted optimism.’

You need sales now.  So, what does it take to find, attract, and engage buyers in this market?  That will be the topic of the next video in this 3-part series: The key to selling more homes now!

Help is coming.

http://SellingMoreHomesMedia.com