Susan Barretta wrote this. It is chronology of the 1990’s bubble. Although no two crashes are ever the same, it’s an interesting baseline/comparison. Have fun.
1990
Realtors spoke euphemistically of the “wonderful buyer’s market,” encouraging anyone who didn’t need to sell his home to “pull off.” Relationships between realtors and home sellers were getting tense. Sellers accused agents of trying to cheat them by pressuring them to lower prices. One realtor (who asked not to be named) said:
“The bottom line as far as I’m concerned is always the price. The main problem I feel is people don’t want to concede prices have gone down.”
One story about the South Bay area of Los Angeles County quoted a realtor who defiantly declared:
“If [buyers] are waiting for the bottom to fall out, they are waiting in the wrong neighborhood. There just has never been any evidence of that in the South Bay.”
And of course, a number of experts were quoted saying the market was bottoming. One realtor likened the market to a junior high school sock hop, with buyers standing against one wall and sellers standing against the other wall, and everybody was just waiting for a few brave couples to venture out on the dance floor.
1991
As housing prices flattened and weakened, homeowners were scared that any change in the neighborhood was going to drag down the values of their homes. In turn they rejected attempts by their city councils to build smaller, more affordable housing units in their areas, even though to financially qualify for the new units a buyer would have had to earn an income comparable to the average income of existing homeowners of higher-priced homes in the area.
At the low end, dreams were destroyed of obtaining a home through sweat equity. And finally, the downturn started impacting the high-end market, which had been considered rather immune to the slump. Homes in places like Bel-Air sold for 50% less than 18 months earlier. One wealthy homeowner lamented, “The real estate bubble has certainly burst.”
Later that year, realtors cited the victory in the Persian Gulf War as a reason for buyers to return to the market; realtors thus hoped for a resultant rebound. For a brief time, buyers did indeed flock back into the market, and there were cases of multiple offers on a few desirable properties.
According to realtors, the general up-tick in sale volume that year was due to sellers listing their homes at more realistic prices instead of starting too high and having to come down. Expectations of rapid appreciation had now disappeared. Experts at UC Berkeley scolded Wall Street for bad-mouthing the Golden State and once again expressed optimism that the housing market, and the state economy overall, would soon recover.
In the meantime, builders were not remaining entirely idle. They auctioned off completed new construction in frenzied bidding wars fueled by agitated buyers. Knowing that first-time entry-level buyers were shut out of the market, major builders focused more on creating smaller units to save on materials and labor, rather than build for the mid-level or high-end markets.
1992
Uh oh. The papers reported that “location, location, location” no longer sold a house. Cutting an asking price now became a “way of life” for many frustrated home sellers.
After witnessing the Los Angeles riots, some panicky buyers cancelled their escrows, and the cancellations were “spread all over” the region, not just in the immediate vicinity of the riots.
Other stories in the papers that year spoke glumly of hardships – of one couple’s American Dream house literally sinking into an oil sump in El Segundo, and of three-year-old Palos Verdes townhouses that were cracking and crumbling away due to poor construction. News writers moaned that neither lower interest rates, nor more affordable housing, were shaking the housing market out of its blues. Palos Verdes owners who were forced to sell were “getting killed.”
One expert explained that when sellers retain high expectations, property doesn’t move. But waiting “only masks the depths of the downside. Then distressed sales force the issue.”
U-Haul reported a run on its trucks as families fled to Denver, Las Vegas, Seattle, anywhere but Los Angeles.
Realtor Fred Sands wrote another letter to his clients, telling them: either forget about selling your property for the next three years, or reduce the price and get it sold. He defended the letter as a “badly needed dose of reality.”
1993
Just five years earlier, California had been described as “the future of America.” Now the state was redefined in terms of its housing slump — “a window into the soul of California.”
Foreclosures were commonplace. Foreclosing owners who could no longer afford therapists found some psychological relief by confessing foreclosure to their friends, who often responded with their own foreclosure woes or came out of the closet as renters. Lenders who previously refused to negotiate with sellers and let them sell short, forcing sellers to foreclose, were eager to unload all the foreclosures on their books.
The real estate market, once a “blossoming bride” of the 80’s, was now a “bloated hag” of the 90’s. The slump turned Angelenos into “budget-conscious tightwads fearful of what lies ahead.” The psychologists of better-heeled patients reported “real estate anxiety,” and “severe, unrelenting stress.” Homeowners were “shell-shocked,” and the “revision in expectations” had been “tremendous.”
One unsuccessful San Pedro home seller said, “This city is never bouncing back. Never, never, never.”
1993 (continued)
The war between realtors and their sellers was taking its toll. One realtor reported that one of her clients “actually said some pretty awful things to me, worse than I think I’ve ever heard. But my job was to push the facts.”
Other owners were caught chasing the market down. At open houses, competing home sellers in the neighborhood would drop by to “compare notes.” At one open house, a seller caught his neighbor rudely making use of his rowing machine. Offers to buy were “insulting.” Adding to the pressure, home sellers faced stiff competition from foreclosures, which one agent said accounted for some 65% of her sales.
Bottom feeders who had attended real estate seminars were making lowball offers. Owners described these lowballers as “predators.” One group of bottom-feeders who were regulars at courthouse auctions in Los Angeles County became known as the 40 Thieves.
Other buyers were described as “picky” and “looking under the hood” — but these buyers held no delusions about rapid appreciation.
CAR forecasts lost their sunshine. CAR notably couldn’t muster any enthusiasm about the prospects for the state housing market, stating that this year and next year would see declines. And condo sales, once the relatively affordable haven for desperate buyers, were looking grim.
One foreclosing owner cried, “It’s a sickness, and we are suffering.”
1994
Agents began to describe their local markets as “well picked over”, and bottoming out, with many mortgages upside down.
One realtor described the horrendous number of short sale cases as “tales from the crypt.” Banks were ever more willing to let owners forced by circumstances to get out of their properties to undergo a short sale.
Other stories described how some upper-scale neighborhoods were being renewed because some young families could now afford to live there and acquire their American Dream, if at the expense of many sellers. In a few cases buyers were trading up, even though they were selling their existing homes at a loss, because they figured that they would make up the loss in their new home.
Owners still trying to sell their houses dealt with lots of rejections, the “little insults” that had festered into “one big hurt”. A house that wouldn’t sell was now a “ball and chain.”
First-time homeowners from the late 80’s were “beat up emotionally,” having saved for years to buy that first house only to watch the equity vanish. Those forced to sell and leave the area characteristically left with maxed-out credit cards, hefty tax bills, and feelings of disillusionment. But some owners who got out from the shackles of the home they couldn’t sell reported blessed relief, even if faced with an increased tax bill for forgiven debt.
In the story that perhaps personified the agony of the downturn more than any other, some owners remained angry at realtors who assured sellers that if they only dropped their prices, their homes would sell more quickly. It didn’t necessarily happen that way. One anguished seller described living with a house that wouldn’t sell like “…living with a terminal cancer patient. There’s been lot of pain. We want the end to come. But when it does, we know it’s going to hurt even more.” His For Sale sign has been “perched like a vulture” for more than two years. He had put up with potential buyers that had brought video cameras and white gloves and their nosy questions and had always found something to criticize. That same seller said he was “bitter”, and described his five years in California as “sheer hell…the place was supposed to be our castle. But the market destroyed it, and it destroyed our dream. It’s like the Great Depression. We feel like we’ve lost everything. Now we’ve got to start over.”
1996
Mortgage delinquencies hit an eight year high; some market observers warned that the market “still has a long way to go.” By this time, close to 40% of the homes on the market in the San Fernando Valley were foreclosures.
Signaling a true turnaround, later reports described “buyers emerging in droves” even as prices were still falling. Yet realtors warned potential sellers that “this is not a time to overprice your property,” and forecasters were wary of a sustained recovery, noting that they had seen a few false dawns.
***
By the beginning of 1997, the market had pretty much bottomed and was on its way to a recovery. But just as prices continued to head up at the beginning of the downturn while sales volume declined, the reverse occurred at the end – sales volume picked up, while prices continued to decline a bit longer. Foreclosures continued to haunt the housing market into 1997, and even a little beyond.
But what on earth happened between 1988 and 1997? How did the mental outlook of the market participants change?
The fearful, pressured, hapless 1988 home buyer was swept along in a fast-running current and had no choice but to compete with other buyers and bid on desirable properties. He was often left out in the cold, and he was terrified of being priced out of the market. But the 1994 buyer was characterized as nosy and intruding and predatory and very, very picky.
The 1988 home seller was euphoric, ecstatic, and gleeful. The 1994 home seller was filled with desperation and despair, comparing the slow torture of owning a home that would not sell to being attached to a ball and chain, or living with a terminally ill cancer patient. The long-suffering mid-90’s home seller even went so far as to perceive long-standing “For Sale” signs as vultures and bottom-fishers as predators.
In 1988 industry observers berated Wall Street for bad-mouthing California and confidently predicted a continued boom. A few years into the downturn they declared too quickly that the market had bottomed. But by 1996 they had become very guarded in their outlook, conceding that they had been fooled by a few false starts, and warning their clients that the market still had a way to go.
The psychology of each market participant underwent a dramatic reversal. And if you want to invest in real estate somewhere near the market lows and sell somewhere near the market tops, these extremes in mood are what we need to look for in the housing markets in our future.
Hopefully, our brief journey through the archives of the Los Angeles Times has been an insightful one, a look back to a time that might help us as we navigate our way through our future.
