- FILE - In this March 24, 2009 file photo, a sign lies on the ground in front of a foreclosed home in Homestead, Fla. Officials in 49 states have launched a joint investigation into allegations that mortgage companies mishandled documents and broke laws in foreclosing on hundreds of thousands of homeowners. (AP Photo/J Pat Carter, File)
- FILE - In this March 6, 2009 file photo, a chain and padlock take the place of door knobs and locks on a foreclosed home in the Bronx, N.Y. With the foreclosure crisis showing no signs of relenting Monday, Nov. 30, 2009, the Obama administration plans to expand a program aimed at helping people remain in their homes.(AP Photo/Julie Jacobson, file)
- In this May 13, 2020 photo, a brand-new $1.1 million, 5,200 square foot home in Davie, Fla. is offered for short sale. The number of homeowners who missed at least one payment on their mortgage surged to a record in the first quarter of the year, a sign that the foreclosure crisis is far from over.(AP Photo/J Pat Carter)
Collapses alike for real estate
Home prices fall and sales collapse after years of a building boom. Business parks sit half empty. Foreclosures increase. Market assumptions go out the window and nobody knows if good times will ever return.
Sound like what’s happening today? If you’ve been in the real estate business long enough, it also sounds like what happened yesterday.
“From the local real estate perspective, they’re both awful,” said Tom Monahan, a longtime Nashua developer. He was one of several local real estate professionals asked to compare this real estate market to that during the region’s last major recession, 20 years ago.
“It’s very similar to the early ’90s,” said Kathy Kaklamanos of The Masiello Group.
Similar but not identical, they all agreed. In particular, the earlier real estate collapse was worse in the short term, probably because it happened from an unprecedented peak in local sales.
“It wasn’t gradual; it was rather sharp,” said Yve Hines, who started with Re/Max Properties in Nashua during that earlier recession. “It almost seemed overnight.”
On the other hand, that recession bounced back more quickly than our doldrums. Technically, the Great Recession began in December 2007 and ended in June 2009.
“When we hit bottom in the early ’90s, it was more of a V-shaped recovery,” said Monahan.
Why today’s slow bounceback? It’s partly due to the different causes for the recessions: local banks collapsed back then while national ones are struggling now; overbuilding was the biggest problem then while over-mortgaging the biggest problem now.
“In the ’90s, all those banks went out of business at the same time, but this time, with the toxic loans, it took awhile … and it’s taking awhile to recover,” said Stephen DeStefano, a Concord real estate agent and state legislator.
But overall, it’s the lack of jobs and the sweeping global nature of this recession that is really holding us back.
“There’s a lack of confidence, a real lack of confidence. Even if they have a job, will they have a job next month?” said Pat Clancey of Pat Clancey Realty in Nashua. “I’m trying to think back on my attitude then, in the ’90s. I think it was ‘this too shall pass.’ We aren’t seeing that attitude now … but I think we’ll start to.”
A building frenzy
It’s hard to remember now, but for the region’s real estate market, the boom times leading to the 1990 failure were much wilder than the recent boom times. Housing developments and condominiums were built at the drop of a hat, bought and sold in a frenzy.
According to U.S. census data, the peak year of 1986 saw 136,000 housing units sold in the Northeast, more than one-sixth the total of the entire country. By contrast, the peak years of the recent boom, 2004 and 2005, each saw about 83,000 sales in the Northeast, roughly one-15th of the national total.
“Back then we were overbuilt. In the ’80s, they went hog-wild, everything was put up on spec,” said DeStefano. “That wasn’t as big of a problem this time.”
Prices soared in that earlier boom: The median house price in New England rose roughly 50 percent in the five years leading up to 1986.
However, they soared just as much in this boom, too, also rising 50 percent in the five years leading to the peak. In this case, however, it was the ability to get cheap mortgages – or mortgages that seemed cheap due to “balloon rates” – that fueled the buying frenzy. In both cases, the resulting recession sent foreclosure rates skyrocketing.
“The number of foreclosures right now is nearly equal to the number we had in 1991, but I think for a different reason,” said Dennis Delay, economist at NH Center for Public Policy Studies. “In ’91 it was people buying too much house and really suffering because of the decline in economic activity. This time we had people involved in subprime lending and borrowing, per se.”
For a time, the fall was about the same in both recessions: Two years after the peak, sales had declined by one-quarter.
But they stabilized in the 1990s, whereas they have continued to fall today: In 2009, home sales in the Northeast were barely at one-third the level of the peak, a bigger decline than seen at any time in the earlier recession, and they have fallen further in 2010.
Low rates and short sales
Sales have continued to decline despite interest rates at historic lows: For a short time, they dipped below 4 percent for 30-year mortgages, less than half the best rates in the 1990s.
They also haven’t been helped by an innovation that didn’t exist 20 years ago, the short sale. In these sales, owners are ready to abandon their mortgage because the house value has fallen below what they owe, so they and the lending institutions agree to peddle the property for whatever they can get, even if it doesn’t cover the loan.
In theory, short sales should be faster and more efficient than a foreclosure, speeding up the shakeout process, but it doesn’t seem to have worked out that way.
“It definitely slows everything down – I had a short sale and it took us six months to bring it to completion,” said Clancey. “I’m baffled by the ineptness of people dealing with short sales.”
The difficulty of getting through these sales may be due to the most obvious difference between the two recessions: In 1991 it was local banks that collapsed; in 2008 it was national banks that teetered on the brink.
National banks, as you’ve probably heard, are having trouble handling the number of plain old foreclosures, let along short sales, which usually require more individualized attention.
This uncertainty is exacerbated by what many say is an unnecessary difficulty in getting loans.
“Back then, because of federal regs and takeover of the banks, there wasn’t any money. You couldn’t go across the street to borrow like we were used to doing with local banks,” said Gerald Prunier, a longtime Nashua attorney who has been involved in the real estate business for half a century. “The difference between then and now is now the banks have the money, but they don’t want to lend it, There are many deals ready to be made out there, but loans are the life blood of real estate, and they’re just not doing it.”
This has kept the market from taking advantage of the recession’s one benefit – the way it has trimmed sky-high prices, bringing the housing market down from atop an artificial bubble.
What can the Nashua area do to fix this? To a certain extent, nothing that we aren’t already doing: hunker down, live within our means and wait for the good times to return. This isn’t a local or regional recession, and it’s hard for local or regional changes to fix it.
We should also be patient, as none of those interviewed see sales and prices rebounding much, if at all, in 2011. Southern New Hampshire is likely to do better than much of the country, but worse than we got used to in the boom years.
Eventually, however, all agree things should improve – although they may never return to 2004 price levels, when inflation is factored in. After all, even in the midst of the latest boom, New Hampshire never returned to the sales level of 1986.
The question is, will we be able to avoid another bubble as the memory of hard times fade?
DeStefano, for one, isn’t sanguine.
“What I’m afraid of is we’ll learn our lessons for a few years and we’ll go back to the way it was,” he said. “In about 15 or 20 years, we might be going through it again.”
David Brooks can be reached at 594-5831 or firstname.lastname@example.org.