How best to characterize one of the most consequential decades ever in American real estate? "Epic roller-coaster ride" doesn't quite cut it. More like a plunge into the depths followed by a neck-snapping rocket ship into the great beyond. One way or another, it's been a wild trip.
On a more earthbound level, the past 10 years were a bit like recovering from a monumental bender.
In the early part of the 2000s, we Americans got ourselves into an extraordinary mess with shady subprime mortgages and loose credit, a glut of new constructions, and overly ambitious investors. It ultimately caused the housing bubble to burst...and plunged the world into the deep, dark Great Recession.
The start of the decade was among the bleakest years ever for real estate (and the nation itself). Abandoned construction sites and boarded-up foreclosures became familiar sights while scores of folks suddenly found themselves unemployed and underwater on their mortgages.
But, as we all know, the U.S. real estate biz bounced back...and it hasn't stopped bouncing yet.
Since mid-decade, real estate and the larger economy have come roaring back as companies began hiring again and millennials got older and needed homes to raise their families in. Prices have hit record new highs, and builders can't put up homes fast enough to satisfy the hordes of eager buyers...once again employed, and making good money. Some of the most devastated urban markets at the start of the decade became some of the hottest by the end of it.
"This decade has been climbing out of a dark hole," says Senior Economist George Ratiu of realtor.com. "From a housing standpoint, we're now doing well. But it's taken longer than expected to get here and we're scarred from the last bust."
So how exactly did we get here? Don't worry if you've forgotten some of the steps along the way...we've recapped the highs and lows of the decade that changed everything!
1. Foreclosures swept the nation
Remember when home prices bottomed out in 2011 and 2012? Ah, memories. Too bad there just weren't that many folks who were able, financially or psychologically, to make a major purchase during those years. So investors ranging from large financial companies to mom-and-pop property owners jumped in to scoop up properties at bargain-basement prices.
"Home prices nationwide collapsed by a third," says Lawrence Yun, chief economist of the National Association of Realtors. In some places, like Las Vegas and Southern Florida, they plunged by about 50%.
That left scores of homeowners who'd bought at the top of the market just a few years earlier seriously underwater, owing banks more than their homes were worth. Five percent of homeowners with mortgages...about 6 million households...underwent foreclosure. Minority communities were disproportionately hard-hit, thanks to the subprime mortgages they had been peddled en masse in the years building up to the crisis.
Foreclosures and short sales typically sold at an additional 15% discount on top of the already fallen prices...if they sold at all. Many lingered on the market for years, recognizable to neighbors and vagrants alike with their boarded-up windows and overgrown yards.
In 2010, 24% of all home sales were foreclosures or short sales, according to Yun. They jumped to 33% in 2011 before beginning to fall a year later.
New regulations, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act, were put in place to avoid another economic meltdown. Risky bad-credit or verification-free mortgages are mostly a thing of the past.
"We look back, and it's almost laughable how easy it was to obtain mortgages," says Yun.
2. The building bonanza dried up
Builders found themselves in the crosshairs of the crisis raging around them. In the ramp up to the housing bubble, they had been putting up scores of new homes...more than there were qualified buyers to purchase.
So when the real estate fire sale ensued, there were scores of newly built and existing homes left vacant. There was no need to build more. Suburbs and cities were pocked by abandoned construction sites.
About half of the nation's residential builders went out of business, says Robert Dietz, chief economist of the National Association of Home Builders.
"Many of the homebuilders who went under in the crisis never came back," says Yun.
That's led to a period of underbuilding, which to this day is a prime contributor to the national housing shortage and ever-escalating prices.
"We've had a persistent skilled labor shortage," says Dietz. "And building material costs have gone up, particularly lumber."
3. America's first real estate president makes homeownership touger
The policies of the nation's first real estate-mogul-turned-president have made homeownership more expensive for many Americans. While President Donald Trump's tax overhaul put more money into the pockets of many folks (woohoo to tax refunds!), it also capped and devalued some of the tax deductions that homeowners have long relied on.
And that's had big repercussions for real estate, particularly in the most expensive markets.
"People always believed that owning a home is a good thing [financially]: Buy a home, get a tax break," says NAR's Yun. "But now with the changes in tax law, far fewer people will be utilizing" housing deductions.
For starters, the standard deduction was doubled to $12,000 for individuals and $24,400 for married couples. While this has been great for many Americans, it makes homeownership tax breaks a lot less valuable. Fewer folks are incentivized to itemize tax bills to include housing-related deductions when they could just take a larger standard deduction.
Those who itemize can't claim much either. Under the new tax plan, they can deduct mortgage interest only on loans up to $750,000. Previously it was $1 million, a cap that was grandfathered in for existing homeowners. In some pricier parts of the country on both coasts, that's what modest, middle-class abodes are going for.
Plus, homeowners can write off only up to $10,000 of property or income and sales taxes. That's a big burden for homeowners in high-tax areas like New York, New Jersey, and California where property taxes can be astronomical.
"The high-cost states are the clear losers," says Ali Wolf, director of economic research at the building consultancy Meyers Research.
4. Natural disasters are upending real estate markets
Natural disasters have long plagued humanity. But they're hitting heavily populated areas more frequently. It feels like no place is safe anymore as more people are moving to increasingly disaster-prone areas and the world starts to grapple with the impacts of overdevelopment, poor zoning decisions, and climate change.
And the devastating loss of life and homes is becoming the new normal.
Housing markets where disasters like wildfires, hurricanes, tornadoes, and flooding have wreaked havoc reflect the pain. Renters are displaced, and homeowners are forced to rebuild or move on. For many, that's an expensive, lose-lose scenario.
Home prices typically spike in these communities as there are a whole lot of people looking for a very limited amount of housing.
In the past few years, deadly wildfires have torn through California with alarming abandon. Red flag warnings and preventive power outages are the threat of whole communities being reduced to rubble, and now a way of life. It's becoming more dangerous as the wildfire season grows longer and extends to some of the nation's most heavily populated cities.
Then there are catastrophic hurricanes like Sandy, Irma, Maria, and Harvey. Benign-sounding names aside, these storms razed entire communities and claimed thousands of human lives.
"Natural disasters have certainly left a bigger fingerprint on the housing market in this decade," says realty.com's Ratiu. "It used to be natural disasters were confined to particular areas in certain time periods. But now they span the entire year and impact most areas of the county."
5. The housing market has overcorrected...sorry, buyers!
As the housing market recovered from the Great Recesssion, the pendulum swung hard in the other direction. The recovery began in 2013 and 2014 and hasn't let up since. It's accelerated as prices have gone from bargain-basement lows to reach new heights and the number of homes for sale continues to fall. Bidding wars and offers over asking are the norm in many markets.
"Finding a home at the right price is very hard, particularly for first-time buyers," says Ratiu.
That's partly due to the lack of new home construction that hasn't kept up with demand.
"We've had years of underbuilding, and we're probably short nationwide about 1 million homes," says NAHB's Dietz.
The good news is that most homeowners are no longer underwater. And sellers are once again making a profit.
Plus, mortgage interest rates are low, offsetting the high price tags of buying a home. In the beginning of the decade, rates were 5.09% for a 30-year fixed-rate mortgage as of Jan. 7, 2010, according to Freddie Mac. They've since fallen to 3.68% as of Nov. 27 of this year.
Even a single percentage point rise can add hundreds of dollars to a monthly mortgage payment and tens of thousand of dollars over a 30-year loan.
The biggest threat to the national housing market is another recession.
But folks shouldn't panic just yet. Economists believe if and when it hits, this one will be far milder than the Great Recession with far fewer folks losing jobs. And it won't likely be caused by the real estate market.
"We really learned our lesson from the previous decade," says Meyers Research's Wolf. "We aren't overbuilding, mortgage credit isn't too loose, and there's more balance in the real estate market today."
6. The resurgence of the downtown and the sleepy suburbs
Some of the more unexpected beneficiaries of this vast economic recovery: a revitalization of America's gritty, urban downtowns and rethinking of the sleepy, once-undesirable suburbs.
Over the past few years, cities have been pumping money into revitalizing their downtowns by filling vacant storefronts with boutiques and craft cocktail bars, transforming old factories into pricey lofts and converting warehouses into breweries. Former industrial waterfront areas have become the places to be as luxury apartment and condo buildings have gone up on their shores.
Younger millennials and empty nesters are once again flocking to cities. They're seeking a more walkable, exciting lifestyle where they can hit up the grocery store on their walk home from the public transit stop.
There's just one problem: high prices.
So older millennials and Gen Xers are moving to single-family homes and townhouses in the suburbs....without compromising what they love about the cities they left. The most popular communities are often more walkable with plenty of things to do and access to transit.
That's because suburbs have been forced to compete with cities for residents. Now, new developments are going up with the mix of housing alongside office buildings, shops, and fun stuff to do. In other words, they're giving the renters and buyers what they want.
"Suburbs were declared dead only about 10 years ago," says Ratiu. "But we've seen a renaissance as the suburbs are being reinvented."
7. The tech effect and Amazon's hung for anew HQ2
Two years ago, Amazon made worldwide headlines when the online behemoth asked cities to compete for its second headquarters, beyond Seattle. Cities of all sizes promised the moon, the stars, and all kinds of tax breaks to lure the promised 50,000 new jobs...with $100,000 average salaries.
The stunt shone a spotlight on how the big tech companies...and their very well-paid employees...have upended real estate markets across the nation, inflating prices in many markets. They've made finding housing a losing struggle for those not making high six-figure salaries.
Just look at San Jose, CA, the epicenter of Silicon Valley, now one of the nation's most expensive metropolitan areas. Since 2012, median home sale prices have spiked nearly 86%, to hit $1,010,500 in the first nine months of 2019, according to the most recent data available. Nationally, they jumped only 37.8% over the same period.
In the year since Amazon announced its second headquarters will open in the Washington, DC, area, prices have jumped. In Virginia's Arlington County, where the company is opening up, the median home list price rose 33%, according to realtor.com data. (Long Island City, Queens, where Amazon had planned to open a third headquarters before the company pulled out of the deal due to the public blowback, hasn't fared nearly so well.)
Northern California's gotten so expensive that tech companies are startups are now expanding intto other parts of the country. Today, unexpected places with newly whimsical nicknames like "Silicon Slopes" (aka Salt Lake City), "Silicon Mountain" (Denver), and "Silicon Hills" (Austin, TX) are booming...as are local home and rental prices. Even a city like Birmingham, AL, is attempting to attract new jobs and talent by rebranding itself as Southern Silicon Valley.
"It's changing the local housing markets for good and for bad," says Meyers Research's Wolf. "It's pushing up local prices, and it's hurting local residents who don't have similar salaries.
"But it's diversifying those local economies, which should help make it more recession-proof," she adds.
8. It's HGTV's world...we just live in it
In the past decade, HGTV and its stable of starts have become an inescapable part of American life. They've everywhere you turn...from TV shows, to books, to home furnishings lines at Target bringing the latest fads, DIY ethos, and home designs to the masses. And that's ratcheted up the pressure (financial and otherwisse) for folks to constantly have their homes HGTV-perfect.
Can't have the guests come over, after all, until the outdated cabinets have been replaced and the waterfall kitchen island and shiplap have been installed.
And that can be very expensive...and time-consuming. Contractors aren't cheap, and renovations can take months.
"You have to update your home to keep up with the Joneses and HGTV," says Ron Becker, a media studies professor at Miami University in Oxford, OH. "Everybody who watches it thinks about design. They're aware of what the new countertop is they're supposed to have."
But these shows are also unrealistic. In real life, home hunting is stressful, home renovations can turn into months of hassles (no time-lapse technology here!), and flipping properties is a big financial risk that doesn't always pan out.
"A good example is [the show] 'Flip or Flop", says Becker. "They never flop."
Source: Clare Trapasso, Realtor.com