Financial Crisis Timeline: 2009- How a Near Apocalypse Affected Real Estate (Part 8)

February 20th. 2018

2009 will go down in history as one of the wildest rides in both local real estate and the entire American economy as a whole. January 2009, where home sale numbers on Staten Island hit lows not seen in over a decade, transitioned into a summer and fall season where sales numbers peaked at 2 year highs.


In March 2009, the Dow Jones Industrial Average hit its lowest point in 12 years. It sunk to 6,537, only to recover over 30% with an average today of over 10,000 points. This has been a ride not many stomachs could handle at times, including mine.


America’s Costliest Disaster: Its Toll Was Not Just Financial


It’s common to equate disasters to natural ones: hurricanes, floods, and earthquakes are some that come to mind. America’s worst disaster stuck with the force of a thousand hurricanes, but it wasn’t nature; it was man-made.


In terms of cost on tax revenues, business and personal losses, this disaster will eclipse every other natural disaster this country has seen combined - and multiplied by at least 30. Most likely, it will take another generation of Americans to foot the bill.


Many say that this doesn’t equate as a disaster, because in natural disasters there is a human toll. They will argue that toll is paid in suffering and lives lost, while this crisis was just financial. However, to assume that is foolhardy- as you can see in this article. There has been a toll in human life and way of life, and much of it may never see a headline.


It was a disaster that, by the end of 2008, caused over 2 million homes to be swept away in a tidal wave of foreclosures. That resulted in many people taking residence the streetsHomeless counts reached records in some cities.  I can assure you the human toll of the fiscal crisis would likely dwarf that of many past disasters.


The Effect On Staten Island’s Real Estate Market


After Wall Street took it on the chin in September and October of 2008, the fallout showed on Staten Island several months later. In January 2009, sales of one and two family homes crawled to just above 150, marking the lowest volume of what would be 7 consecutive months of home sales under 200 units.


This would go down as the lowest sales volume recorded on Staten Island in a seven month period since MLS has tracked statistics. It wasn’t that it shouldn’t have been expected. Fear over the fiscal crisis the nation was facing weighed heavily on the minds of homebuyers and just about anyone else short of buying crumb cake.


Chronology Of The Economic Storm That Defines A Decade And A Generation


March 2008


The fiscal crisis begins way before March 14th 2008. However, on this date the collapse of Bear Sterns becomes the first significant evidence an economic storm is looming nearby.


Bear Sterns, while a large firm, wasn’t as massive as The Lehman’s and J.P Morgan’s of the investment banking world. Its fall, while troublesome, didn’t quite raise the specter of many outside the financial world. However, among Wall Street insiders this was the most apparent sign of the economic storm thundering beyond the horizon, ready to move in.


July 2008


IndyMac Bank fails after mortgage defaults and a run on bank deposits wipe banks vaults clean. The FDIC is now in control. This marks the 2nd largest bank failure in American History. A rapid decline in housing values and cracks begin to show in the American financial system.


This prompts the Bush Administration to take action.  In an effort to stimulate the housing market, The Housing and Economic Recovery Act of 2008 is signed into law by President Bush. Included in the bill is what will be the first of three upgrades to the first time homebuyer tax credit. The bill provides a $7,500 tax credit, which will essentially be loaned interest free to first time homebuyers, and paid back to the IRS over 15 years.


The Mortgage Disclosure Improvement Act of 2008 addresses significant transparency issues that existed within the sub-prime mortgage industry. The bill requires disclosing the specific time frames and costs associated with obtaining a mortgage. It will even address future costs and payments on ARM’s, Interest-only and all other exotic mortgage products that have future reset dates.


The bill also targets the mortgage broker Industry by enacting the Secure and Fair Enforcement for Mortgage Licensing Act of 2008. This means loan originators, including those who take residential mortgage loan applications and assist borrowers in obtaining a mortgage or whom negotiate residential mortgage loan terms, will now be required to be registered in a government overseen registry.


Below were some key provisions in the bill.


• Increases the FHA loan limit from 95 percent to 110 percent of area median home price, up to 150 percent of the GSE conforming loan limit, to a maximum $625,000.


• Requires minimum down payment amounts of at least 3.5 percent for any FHA loan.


• Places a 12-month moratorium on HUD implementation of risk-based premiums.


September 7th, 2008


On this day it all becomes apparent. The economic storm was now within earshot, about to take Wall St. and America with a vigor not seen since the Great Depression.


With the collapse of Bear Sterns and Indymac Bank forming the storm’s outer bands, the core of the storm arrives with the announcement regarding a government takeover of Fannie Mae and Freddie Mac, both awash in bad mortgages and mounting losses.


The takeover was rumored several months earlier, but considered a last resort at the time. However, with the rapid decline in investor confidence in mortgage-backed securities, liquidity was running dry and costs were rising rapidly. Today was the day Uncle Sam ran out of options. The government takeover would provide more liquidity as investor confidence in mortgage backed securities would rise under the prospect that mortgages were guaranteed by government.


Photo Source: Flickr User Juan Ramón Díaz Ruiz

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