Home ownership post WWII
Home ownership rate in 1945: 45%
Home ownership rate in 1955: 65%
Standard down payment: 20%
Standard mortgage term: 30 years
Home ownership 1994-2005
Home ownership rate in 1994: 64%
Home ownership rate in 2005: 69%
Possible down payment: $0
Standard mortgage term: none, variable
Who gained home ownership 1994-2005
Home ownership rate for blacks 1994: 42%
Home ownership rate for blacks 2005: 49%
Number of new black homeowners 1994-2005: 1.5 million
Home ownership rate for Hispanics 1994: 42%
Home ownership rate for Hispanics 2005: 50%
Number of new Hispanic homeowners 1994-2005: 2.0 million
Home ownership rate for households indicating more than one race 1994: 52%
Home ownership rate for households indicating more than one race 2005: 60%
Number of new homeowners indicating more than one race 1994-2005: 2.0 million
Growth of the subprime mortgage market 1994-2005
Aggregate dollars in subprime mortgages 1994: $35 billion
Aggregate dollars in subprime mortgages in 2005: $625 billion
Percentage of total mortgages that were subprime 1994: less than 5%
Percentage of total mortgages that were subprime 2005: 20%
Annual rate of increase in subprime mortgages 1994-2005: 26%
Subprime loans made by less supervised subsidiaries of banks and thrifts: 30%
Subprime loans made by independent mortgage firms without federal supervision: 50%
Foreclosure and personal economics
Rate of foreclosures in prime mortgage market: below 1%
Rate of foreclosures in subprime mortgage market: 7% (10 times as high as prime)
Predicted increase in foreclosure rates for new subprime loans 2006: up to 20%
Confounding factors leading to foreclosure: Job loss and illness
Number of Americans now without health insurance: 45 million
Percentage of first-time, low-income home buyers who return to renting: 40%
Percent of homeowners spending more than half of disposable income on housing: 45%
Percent renters spending more than half of disposable income on housing: 57%
Source: Subprime Mortgages: Americaâ€™s latest boom and bust by Edward M. Gramlich
Visit this blog if you want to better understand Chicago’s place in this current real estate market, the health of Chicago
neighborhoods and an urban green lifestyle . Those were our specialties at the Sun-Times Real Estate section while I was the editor, and I plan to write a bit about that here.
If you’d like to learn where Chicago stands in the data from mortgage insurance central â€” the PMI Group â€” and hear from Chicago real estate players about where we are heading, download the Sun-Times Jan. 18 cover story here.
By Sally Duros
Chicago Sun-Times December 21, 2007
It’s time to celebrate the end of the era of the Grinch, that crabby green fellow who lives in an isolated cave above the warmhearted community of Whoville, aiming to spoil the Who’s festivities.
He bears a resemblance to some real estate speculators. Only a heart two sizes too small could take delight in making money off the land and structures that define a place while sacrificing the intrinsic value of home and community that give that place its identity and form our emotional bond to it.
That’s not to say that change is bad, or development is wrong. But it takes a neighborhood to grow a home — and that’s a fact.
If you don’t believe me, ask me old dad — who will be 87 come the new year and still lives in the century-old house in Rogers Park he has lived in for 50 years of his life.
Although my dad’s house is certainly not the fanciest house on the block, my dad is the kind of neighbor you want in your Chicago neighborhood. He relishes clearing the ice and snow from his walk, and he can’t wait to rake. He’s not into fancy landscaping and statuary, but he likes a birdbath or two, and you can bet he plants a mean peony, and looks forward every Thanksgiving to the hardy rust- colored mums that bloom near the fence and the neighbor’s driveway.
It takes a neighborhood to grow a home, and that was proved last autumn when a mean wind blew into town and took down two large dead branches from the tree my dad had planted on the front lawn 45 years ago when my sister was born. Just a week earlier, we called the city to cut down the branches, but my dad’s not the kind of guy to push back against a recalcitrant city worker. The guy from Forestry said he was working overtime. “What do want me to do?” he asked, shrugging.
So when the big wind came, it blew the branches down and they crashed to the ground, tearing a big hole in the old-fashioned Sears chain-link fence, the kind with steel posts anchoring the corners and at regular intervals with long rolls of steel links stretched from post to post.
It took my dad several days to saw the big branches into manageable pieces and clear the timber debris from his fence and make a large but tidy pile of hard wood on his front lawn. He and my brother had done most of the labor by the time the city workers came to lend a hand.
But, still, he had a fence to be mended.
It’s not one of those fancy iron fences, but it supports the shrubs and for years it worked fine to keep the kids from running pell-mell through the yard and trampling the flower beds chasing after 16-inch softballs.
My dad, of course, wouldn’t pay anyone to fix it. He’s one of those fiercely independent homeowners who takes great pride in his ability to repair any problem with his house.
So he bought a new top pole for the wire to set against, and he went to work trying to re-align the crossed-wire with the corner post. Before he was through, two passersby, the block’s friendliest dog walker and two neighbors had lent a hand.
They stood huddled with my dad at the corner post, scratching their heads, puzzling the navigational dimensions of the problem, and then finally took charge of the pliers, holding the wire tight and straight so my dad could use both hands to screw the bolts and rebuild that corner of the fence.
The downing of the tree-branches turned out to be quite the neighborhood event.
And the fence mending in its modest, Chicago neighborhood way took on some of the positive characteristics of an old-fashioned barn-raising.
And that’s how it is in my dad’s neighborhood. People are always pitching in to lend a hand. That’s one of the benefits of settling into a place and getting to know well the people who live there.
That’s a big benefit of letting the neighborhood grow your home.
It’s a fact some of us might have forgotten during the hot speculative market in Chicago real estate of the past few years, when some Grinches among us were buying and selling homes simply to drive up prices.
This is not to say that everyone should live this way. But it is to say, that if you find yourself living in the house you are in for a while longer than you thought it might have unexpected benefits.
The next perennial holiday favorite could very well be “How the Pinch grew Christmas.”
Please pass the roast beast!
Greed is Good — sometimes.
By Sally Duros
Chicago Sun-Times Real Estate Editor
“Greed is good — most of the time, but not when it comes to residential real estate,” says William Strauss, senior economist and economic advisor for the Federal Reserve Bank of Chicago.
“Early in December, we’ll be celebrating the 20th anniversary of one of my favorite films of the 20th century: Wall Street”, Strauss told the Chicago Economic Outlook Luncheon for 2008. “Gordon Gekko’s comment “Greed is good” is right on in terms of corporate raiders coming in and remaking what was happening in an industry. It’s all to the betterment of that particular company and industry.”
“But [real estate] was a situation where greed was not good because people came in without the kinds of knowledge they should have had.”
For those of you needing a refresher on that over-the-top 1987 celluloid offering from Oliver Stone, Michael Douglas played Gordon Gekko, a ruthless Wall Street merger and acquisitions guy who bought companies, took them apart, and sold off their assets to become obnoxiously rich.
The movie is quite a period piece today with its state-of-the-art, shoe box-sized cell phones, its orange flickering CRT tubes that preceded today’s slick iMacs and, dare I say, quaint value system that saw the workers winning and the corporate raiders going to prison.
In the film, Gekko’s actual quote is: “Greed is good. Greed is right. Greed works. Greed cuts through, clarifies, and captures the essence of the evolutionary spirit.”
It’s true that when the dust clears from the ruckus that is today’s residential housing market, homeownership will have evolved. But it’s not clear, even to Chicago’s very own Federal Reserve bank, what that spirit will have wrought.
“Housing had been doing very well,” Strauss said in an interview. “Housing is reversing itself. That’s what happens in these roller coaster sectors.”
The big question with all the fingerpointing, political posturing and general gnashing and wailing is: Why are we going through this?
“We are all surprised by this extra froth in the housing market,” Strauss said, pointing out that despite housing’s full percentage point drag, the economy is still growing at a 2.5 percent annual clip.
Strauss said that with job creation doing very well, and income rising substantially, the problem is not the economy. “This is not a situation where people are losing their jobs.”
Can we blame interest rates and the Feds?
“As you can see mortgage rates are up to 6 3/4 percent,” Strauss said. “If anyone thinks that is enough to kill off this market, we have to have a long talk.”
The answer is — and if you get it right you win one of those groovy two-pound cell phone product placements from the movie “Wall Street” — ta da!
“The price of homes,Strauss said. “To use a technical term in economics, ˜Prices went nuts!”
For the past 10 years, home prices appreciated at a rate faster than the rate of inflation. So if your income was rising at the rate of inflation, it was taking a larger and larger slice of your income to afford these homes, Strauss said in his presentation.
“You can see where this is going,” Strauss said. “As [homebuyers] put less and less skin in the game, the returns go up astronomically. You know those wealth-creation seminars — a lot of people bought into this Ponzi scheme. It was all based on the fact of home prices going higher,” Strauss said. “As soon as we knew prices weren’t going any higher, that would be the end of the game.”
In his presentation, Strauss pointed out that with 300 million people in this country, raw numbers of foreclosures can be misleading. “This is an issue related to the adjustable rate products,” he said. “Even the risky borrowers who took out fixed-rate mortgages, they are doing fine.”
Strauss said that the dramatic downturn in housing starts is still less than the sharp plunge 40 percent that the nation saw in the early 1990s. “This time they’ve fallen only by about a third,” he said.
“There probably was not enough adjustment, and that’s probably why we are seeing this. “Foreclosures as a share of all loans outstanding right now is at about 1.4 percent,” Strauss said. That’s below the peak of the 2001 recession, but don’t relax yet, he said, it will continue to get worse next year. The downturn is likely to continue for the next two, maybe three quarters. Strauss also maintains that the correct view is to see the main problem being adjustable-rate subprime mortgages.
“With the recession in the early part of this decade where you saw both adjustable- and fixed-rate foreclosures move higher uniformly [due to layoffs].” He said that although we have not yet reached the foreclosure levels of the last recession, we are almost certain to go above them.
Subprime is about 14 percent of all loans that are outstanding. Unfortunately, adjustable-rate loans comprise the lion’s share of subprime loans — about 75 percent of subprime loans. Still it’s less than 10 percent of all loans, Strauss said. “That’s why I don’t think we’re going to have a great macro-economic issue here, because even if we go to a 10 percent foreclosure rate, it’s still less than 1 percent of the entire mortgage market in terms of number of loans. And we know that subprime loans tend to be smaller loans.”
So, why did prices go through the roof over the past decade?
Maybe that’s a question Gordon Gekko can answer.
Many first-time homebuyers and individual real estate speculators succumbed to a kind of bubble psychology. They feared being priced out of the market or missing out on making a killing from rapidly appreciating equity. Some unknowingly” and many knowingly” bought into the now infamous exotic mortgage instruments that are the subject of such debate in Washington.
Yep, some lost their heads when they felt left out, and some were simply greedy.
Let’s not forget Wall Street investment banks Merrill Lynch, Citigroup, Morgan Stanley and Bear Stearns, which have posted $50 billion in write downs this year as a result of their “toxic-waste” mortgage-backed paper. Even with those losses, they are expected to announce $38 billion in bonuses for 2007.
There’s some inspiration for Gordy Gekko.
As David Wessel wrote in his “Capital” column in Tuesday’s Wall Street Journal: “Ditch the cliche that government should be run more like a business. It’s too flattering to business.”
But this time when greed cuts through, clarifies, and captures the essence of the evolutionary spirit it will cut like a laser to the very heart of the American Dream.
View highlights of William Strauss’s Midwest Economic Outlook for 2008 on my blog, The Right Place at SunTimes.com.
The Chicago Sun-Times -COPYRIGHT- Â© 2007 Chicago Sun-Times.
By Sally Duros
On Monday, the Chicago Sun-Times celebrated its Innovation Awards;
it was also the day that Chicago-area homebuilder Neumann Homes
announced reorganizing under Chapter 11 Bankruptcy.
The 10 winners of the Innovation Awards were feted at an amazing
event at the Goodman Theater attended by nearly 800 people of all
stripes who enjoyed food, wine and spread copious kudos around for
the winning risk-takers.
I say risk-takers, because that’s the core of innovation: Stepping
off a cliff into the dark chasm of uncertainty to meet a market
need that sometimes only you — the innovator — sees.
Neumann had taken its risks, too, by expanding into Detroit — at a
time that’s now proven to be too late in the game.
Neumann’s bankruptcy is a topper to a decade of real innovation in
Chicago’s as well as global real estate markets. Innovations like
automated underwriting — which rose from nonexistent to the
standard over ten years –meant transactions between buyers and
sellers became faster and faster, creating new opportunities and
classes of securities.
We are seeing now the double-sidedness of this speed. Even as it
removed barriers to homeownership, it also enabled abuses and
Innovation is like that. It cuts like a knife to the quick of a
market. Seemingly overnight it creates winners and losers. Most of
all, innovation ensures the future is unpredictable. It means
tomorrow is always a new day.
Now that real estate is working through its dark night, we’re
looking forward to innovations soon to come at tomorrow’s dawn.