Good Evening-
I had the pleasure of attending a function at The Madison Club today where Dave Stark, President of The Stark Company REALTORS(r) spoke. I truly have to thank Dave for the line of the week… or the line of current market. “At that price the buyer for your property is probably being born today!” Thanks for that Dave! At this function, the talk was directed towards how we got here, and where we are going. Is it the lending industry, the housing industry, uneducated consumers, Wall Street or Mainstreet. I really don’t think that you can narrow it down to just one, and I don’t necessarily think that any one cause is more to blame than the other. Instead of saying it is one entity or industry responsible for our crisis, I think what we have to blame is human nature. It is human nature to “want” and really “wanting” is what lead us down this road. Let’s just watch Joe Buyer, the consumer start the fall of the domino driven by want. Joe wants a house in 2001, Joe finds a house but Joe wants more house, interest rates are low so Joe can afford the monthly payment on more…. the lender makes commission and wants more so the lender aggressively finds more people that want more house at a low monthly payment, with a low interest rate. Houses start moving FAST and supply is low, the consumer wants more… so more are built, lenders want more, wall street wants more and everyone tries to figure out how to make more. Now we are at 2004 and Joe Buyer wants more again so he sells at a ridiculous profit and buys more assuming he can do it again. Lenders saw how great that worked for Joe Buyer and wanted more, so they loaned more because, well what is the worst that can happen they sell the property and make a profit!! Now builders want more so they move on to phase 2, 3 and 4 knowing that “If I build it they will come.” Now the “I want more train” is going so fast nobody can stop it… what most forgot to look at is that when Joe Buyer made that ridiculous profit in 2004 selling the home he purchased in 2001, let’s say at least 20% appreciation over that period, they didn’t realize that wages didn’t increase at the same rate. I’m no economist, but doesn’t that create an affordability issue? Now the consumer wants MORE, but if their income doesn’t rise to the occasion, how do they pay for more? CREDIT, but the lenders want more and they were “going green” meaning they stopped taking environmentally unfriendly applications and just started giving money. So where does the blame fall? Think of every American consumer in a classroom, now imagine the teacher (lending regulations) stepping out for 15 minutes. Sure a few of us just patiently sit at our desks content as can be, but the ones who start eating glue when the teacher is gone…. those are the ones that were the catalyst for where we are today. I guess now we know what American Consumers would do if nobody was watching….. I was one of those Americans that ate the glue! I bought in 2002, sold in 2004 for an 18% profit, I WANTED more so I bought a condo on non-conforming, interest only, 5 year balloon, with ZERO down, in the unicorn section, with the pot ‘o’ gold option, banking on an 18% profit in 2 years again. Well guess how that is working out for me now?! Again I’m no economist, and I’m not even that smart, but let me bottom line this for you. The median sales price of single family homes in Dane County 1997-2007 rose 75.24% from $124,800 to $218,700 while incomes in Dane County rose over the same period my best estimate of 19.18%. In order for the housing boom to go on unchecked, the median income in Dane County would have had to increase from roughly $48,500 to $84,991 from 1997-2007. Well let me ask you if your household income made that leap? In reality the median Dane County household income today is around $55,000….. so what happened? We still WANTED MORE and financed the difference because the teacher walked out. The economy cycles are human cycles, predictable just like humans are as long as we watch the right numbers. Affordability truly is the governing factor in housing, and well….you can’t buy ’em like you used to.
Thanks for reading…..numbers soon to follow…
Sincerely,
Brett Boettge
In My Head 