Articles

Article by TANYA SVOBODA

April 2020

We are living in uncertain times. With the spread of coronavirus across the country, and new regulations and mandates being issued regularly, it is easy to assume that at the end of all this nothing will be the same – including the housing market. However, it’s important that we look at the big picture in order to prevent the fear of the unknown from clouding our perspective.

American businesswoman Valerie Jarrett, who served as senior advisor to former President Barack Obama said, “Part of what makes America strong is our resilience, tenacity, innovation and our willingness to be optimistic about our future.” She is right, and history has proven that when the American housing market experiences a disruption, as it has before, it has been met with tenacity and resilience. Here are three examples of how America has bounced back after housing disruptions.

THE GREAT CHICAGO FIRE

In October of 1871 Chicago was emerging from a summer plagued by drought. So, when a fire started in a barn it spread quickly. Fueled by Chicago’s infamous winds, it quickly burnt large parts of the mostly wooden city. The fire destroyed a section of the city approximately 4 miles long and 1 mile wide which, according to a Thought Co. article, meant, “Virtually all government buildings were burned to the ground, as were the newspapers, hotels, and any just about any major business.” This fire is estimated to have left over 100,000 people homeless.

Despite this major setback, Chicago rebuilt quickly and with stricter fire and building codes. Chicago emerged in the early 20th century as a major hub (in PDF) for Westward expansion. It became home to many of retail’s biggest names including Sears, Roebuck and Co.; Marshall Field & Co.; and Montgomery Ward & Co. And, according to the same Thought Co. Article, “the bitter lessons of Chicago’s destruction affected how other cities were managed.”

HURRICANE KATRINA

Hurricane Katrina struck Louisiana’s shores in August of 2005. The hurricane, and the resulting flooding, took over 1,800 lives and gave the hurricane the title of “costliest natural disaster in U.S. history.” Census Bureau data showed that “Katrina reduced the housing stock in the Orleans Parish by 50 percent.” With this lack of housing, New Orleans saw a decrease of 254,502 people and a loss of over half of the city’s population. But, a decade later, “90 percent of New Orleans’s pre-storm population” had returned and housing prices were on the rise in most wards.

What’s amazing about the resiliency of the New Orleans’ housing market is that despite the fact that hurricanes are likely to strike the area again, people are still buying and building in the area. Many are taking into account the effect of global warming, and what they learned about flooding from Hurricane Katrina, and they are building structures more resistant to the effects of both. A National Institute of Building Sciences (NIBS) report released in 2019 showed “that by adopting resilient infrastructure now, communities will be able to save money—and lives—later, when disasters hit.”

THE SEPTEMBER 11TH ATTACKS

The terrorist attacks on September 11, 2001 changed the fabric of American life forever. This momentous event also set into motion a series of decisions which would eventually lead to the burst of the housing bubble in 2008. The article Did 9/11 Cause the Financial Crisis? tells us interest rates at the time of the attacks were already low, at 3.5 percent, and they continued to fall through 2003 as “the Fed tried to buoy consumer demand after oil prices shot up.”

Wells Fargo economist Mark Vitner said in the article Did 9/11 Attacks Set Stage for Housing Bust? “One of the things that 9/11 triggered was that it led to this nesting instinct.” He continued, “We saw demand for housing pick up dramatically.” But mortgage rates didn’t stay low forever and what resulted in 2005 when they rose, was a rise in mortgage payments and consequently defaults on many loans.

By 2011 the housing market began to recover when, according to a Chase article, cash-only investors jump-started the turnaround. By 2015, the time the Chase article was published, cash-only investors were “starting to be elbowed out by traditional home buyers: an indication that the market [had] opened back up.” As a result of the housing bubble bursting in 2008, lenders now follow stricter guidelines and regulations when deciding who to lend money to. Government backed lending agencies like Freddie Mac are even making efforts to educate potential borrowers on the lending process.

WHAT DOES ALL OF THIS MEAN TO US, AND THE HOUSING MARKET NOW, AS WE HUNKER DOWN AND SHELTER-IN-PLACE?

Looking to the past helps us understand that disruptions to the housing market happen all the time, and on varying scales of length and intensity. Many disruptions to the housing market are caused by underlying flaws in the home buying system (post 9/11 market crash) or a community’s infrastructure (Chicago Fire and Hurricane Katrina). As a result of America’s resilience, we not only bounce back but we emerge better than before. So, instead of worrying about what will change in the housing market as a result of the coronavirus, take a cue from America’s resilient track record, and instead dream about what will be better.