The Perfect Storm for Recovery

It was the fourth quarter of 2008 when all of a sudden my phone stopped ringing.  I had been working as a Realtor through the real estate boom and had become accustomed to a solid pipeline of clients.  But when the financial crisis hit, and the stock market crashed, all of a sudden my pipeline was dry.

I did what any single gal trying to make a living would do.  I put a plan in place for my business to survive the recession.  One of the key commitments that I made was to attend as many seminars as I could to stay educated on what was happening in the markets.

As I attended seminar after seminar, I kept hearing the same analogy, “The Perfect Storm” had arrived.  I heard economists discuss all the pieces of the puzzle that caused the collapse of the financial markets, the stock market crashing, and the bubble bursting in the real estate market.  Money was cheap, inflation was soaring, consumer spending was at an all time high, predatory lending was in play, people were buying homes they couldn’t afford, and there were consumers refinancing homes and taking huge amounts of cash out of their properties.  These factors set the stage for the “Perfect Storm” that we will forever refer to as the Great Recession.

In 2009, I began going on appointments to meet with sellers to discuss the value of their homes.  Prices began to decline and night after night I was delivering bad news to homeowners.  This trend continued for the next several years.

During this time, I saw trends forming amongst my clientele that were consistent with what the media was reporting.  Consumers were panicking as they watched the equity in their homes disappear.  I saw a shift in my clients from spending to saving.  NBC reported in an article written in June of 2009, that the U.S. consumer savings rate spiked from a number hovering near zero in 2008, surged to 6.9%, the highest level since December 1993.

Also during this time, I had clients that decided to sell their properties at a loss and bring money to closing.  Many of these sellers went into rental properties because they were afraid to buy again or just didn’t have cash to put down on something new.  Some chose to short sale or walk away from their properties resulting in damaged credit. Both of these choices strengthened the rental market. In an article written on July 4th of 2012, The Chicago Tribune reported that rental rates were the highest in the U.S. since 2007.  

As the rental market continued to grow the Homeownership Rate in the U.S dropped from an all time high in 2004 of 69% to 67.4% in 2009 per the U.S. Census Bureau.

I also met with countless clients that planned on sitting on the fence, until the real estate market “hit the bottom.”  Year after year, I would re-visit the conversation of buying a home with these clients, and year after year, these households were waiting.

All while this is happening, the population continues to grow by approximately 2.5 million per year in the U.S. (according to www.NPG.org). 

In the fourth quarter of 2011, I began to watch the amount of homes on the market start to decline.   Why?  Well, population grows, but new homes are not being built.  Homeowners that are underwater on their properties cannot sell their homes.  They keep them off the market.  Some homeowners lease their properties out rather than sell them.  These factors certainly contribute to the limited inventory. 

But then, unexpectedly, in the first quarter of 2012, the buyer demand picks up – shrinking this inventory even further.

In the first quarter of 2012, the sales in my local La Grange Coldwell Banker Office were up 87.5%, compared to the first quarter of 2011.  The local La Grange market ended 2012, with a 41.1% increase in single family home sales over 2011 per Midwest Real Estate Data, LLC. This trend is consistent in many neighboring markets.  Real estate is basic economics of supply and demand.  When there is a shortage of a supply of homes, and the buyer demand picks up, this begins the shift in the market.

I watched it happen right before my eyes.  The real estate market here locally, was changing.

In 2008-2009, economists coined the collapse in the markets as “The Perfect Storm.”  In 2013, I’m coining the factors effecting today’s housing market as “The Perfect Storm for Recovery.”  You would have to have been watching very closely to see it coming.

Why the increase in buyer demand? 

Interest rates dropped into the 3-4% range in 2012, home values in Chicagoland were still down +/- 30% depending on the area, making homes really affordable.  The amount of homes on the market was declining for reasons stated above, rental rates were increasing, and finding a rental became not only expensive, but competitive.  Conservative consumers spent the last five years paying down debt and saving money.  We began seeing some buyers come out of the woodwork that had cash again.

 As the inventory of homes on the market shrunk, buyers that were sitting on the fence waiting – all of a sudden saw properties selling faster, and maybe even at a little bit higher price than expected.  These buyers began getting in the game and buying homes. 

Buyer demand for homes increased, and the supply continues to shrink.  Basic economic folks…this is the turn in the market, “The Perfect Storm for Recovery.”

Tricia Riberto is the Managing Broker and Branch Manager for Coldwell Banker’s La Grange office. Before Tricia took on her role in management Coldwell Banker, she worked as a sales agent in Chicago and ranked in the Top 2 percent of Coldwell Banker Realtors nationally, and consistently ranked amongst the Top 5 percent of Realtors in Chicago. You can contact her at Tricia.Riberto@cbexchange.com.