At the time I didn’t pay much attention to the MBS market. I was a licensed broker and had access to the MLS and was watching the trends. I also called U-Haul (because they had no web site at the time as did no other company that I’m aware of) repeatedly to get quotes that would reveal the net migration patterns out of San Diego and California in general despite what the media and other brokers kept saying about everyone wanting to live here. I also re-read a book I had bought years earlier in college where I majored in Real Estate Finance. The book was called “The Coming Real Estate Crash” by two authors by the names of Cardiff and English. I highly recommend getting it. Even though it’s quite dated (1st published in the early 80’s) it has a section that describes real estate market psychology better than I’ve heard anyone else try to explain it.
I can’t recall the number of Banks that went belly-up, but it was a shocking number and they were all over the USA. The funny thing I remember was that RTC’s Sr. Mgmt., at Home Fed, the RTC Credit Review Committee, was comprised of CEO’s and EVP’s from failed banks in Arizona and elsewhere in Calif. that the RTC had taken down. I also remember there were no S&L’s left in Phoenix at that time because when I was trying to sell houses there for a client in San Diego we were told there were no S&L’s left in Phoenix and the banks just weren’t lending. The mortgage companies had minimum loan amounts that were much higher than the $15,000 & $20,000 my client was selling his Phoenix homes for in 1991 (they were in crappy areas if that’s any consolation). In fact the only people willing to buy the homes were the tenants and my client had to “creatively” manufacture the down payment. He just wanted out at any cost and would have given them away to a charity if the tenants hadn’t bought them
At the time, there was alot of talk at the begining of the crash that the government would step in, but it was all wishful thinking and it won’t happen for many reasons:
The government is too far in the red already
Things have to play out to their “natural” conclusion. It’s all part of the economic cycle of life. The crash has already long been anticipated in numerous other ways. It has to play out normally.
Allowing Uncle Sam to step in and cure or mitigate the crash would create a consumer mindset that would be far more dangerous for our economy. There has to be consequences. Even though bankruptcy allows you to wipe out all your debts, you pay a big price not being able to obtain credit for years, other than maybe credit at more onerous terms.
Your question, why have people forgotten what happened just over a decade ago is one I’d really like to address because the answer says more than you’d think. The only people who “really” understand that period were those “right in the middle of it” like those working at the RTC who sold that REO at firesale prices and those who got financially burned badly. That’s a smaller group than those not part of this group, and even then, many of those never understood what caused the crash in 1989-1995, so what you have is a very small number of people out there who really understand, although I’m extremely impressed about how knowledgable Rich at Piggington and other housing bubble blogs are, and their very public discussion of the facts/data will compact the cycle this time.
The only thing I remind people is that if you don’t have to sell in a bad market, competing with the sale of bank REO, massive inventories on the MLS, etc., you can say your property is worth anything you want based on any amenity of dubious merit, because you’ll only be called on it when you actually have to compete with the market by trying to sell in competition with it. I have vivid memories of many real estate owners during the 1989-1995 period who would argue in the face of actual sale comps all day long. The point I’m making is look at the data only, not statements of subjectivity.
Regarding all the new investors seeking to scoop up deals which will hold up the market…that ocurred last time too, UNTIL the new market psychology kicked in. The emotions of optimism and greed that drove this market through the roof will invert into pessimism and frugality which over time will drive prices through the floor. There is a new emotional mindset already taking place. You can see it in many postings, not just housing bubble blogs, but real estate listings on the classified section of SDREADER.com and others where people who probably don’t consider themselves religious are actually praying for a buyer, yes they used the word praying in their ad. I saw another ad for a Hillcrest property that basically said they were sick of real estate investing. This mood will permeate the market as the market increasingly begins to grind down even slower.
As far as live auctions, they are a strange thing in my opinion and are driven more by emotion than anything else. I’ve been to many of these and am always amazed at how often investors will bid the properties up to market with less assurance than they would get if they had bought in the traditional way through a broker. People just get caught up in the emotion. Some people think “auction” and “good deal” are synonomous. I’ve heard many people brag about the deals they got at auction, but when you comp them out, they simply bought at market, with fewer assurances, which to me makes it a worse deal.
