"Worse than the Great Depression!"

That seems to be the rallying cry of every media outlet over the past few days. While it makes for sensationalistic headlines, it is not true. At least, we do not have data that proves it is or isn't true.
Let's start with a few facts about Housing data:
There is little reliable data about national home prices in the 1930s. The NAR data only goes back to 1969, and the US Government data from that era covers new home construction, not existing home sales.
The closest thing we have to national prices is the S&P/Case Shiller Index. The Index, which uses repeat home sales pricing, originated in the 1980s. Any chart showing home prices in the 1920s or 30s does not use actual sales data, but are hypothesized, historical data for the indices are available back to January 1987.
Know that sales volume of New Homes has fallen 82% versus 80% covering the 1929-33 era. By that one measure, you can ostensibly draw a conclusion that this single metric, covering less than 15% of all home sales, is worse today.
How does the Great Recession compare to the Great Depression? Some facts we do know:
1. Home ownership in 1930 was 47.8% versus 66.2% in 2000, and near 70% in 2006. (Census Bureau)
2. Unemployment was 25% at its Depression peak; the 2007-09 Recession never saw unemployment get over 12%. (BLS)
3. GDP lost 30% in the Great Depression; During the Great Recession, we lost 6% of GDP. (BEA)
4. Following the 1929 crash, broad stock market losses were more than 75% (Peak to trough Dow losses were 89%). 2007-09 stock losses were 50-57%.
5. Industrial production, which plummeted 75% around the 1929 Crash, has actually thrived during the Great Recession. Fed action and a weak dollar has helped US Manufacturers.
Both the Housing markets and available financing were widely different, then versus now. In addition to the lower Home ownership levels, 66.2% vs 47.8%, it was more concentrated among the wealthy as opposed to broad-based ownership now. Many more people lived on family farms early in the 20th century than today. And, more homes were owned outright, no mortgage in the 1930s versus today. I recall it was over 70% in the 1920s with no mortgage versus about 40% today. But the biggest and most important difference was financing. Mortgages were 3 to 5 year, interest only, with a balloon payment of the amount borrowed at the end. After that 3 year period, you either resigned with the bank, or sold the land and paid off the note. There was no such thing as a 30 year fixed rate mortgage in the 1920s or '30s. That would have had a huge impact on prices. Banks were failing by the 1000s; even someone with the means to roll their mortgage over might have found the bank did not have the ability to do so. With few buyers and almost no credit, the odds favor that RE prices would fall quite substantially. How much? One study of Manhattan, that looked at market-based transactions home prices between 1920 and 1939 found that Home prices plummeted 67% during the great depression.
Yes, home prices are bad. They are nearing the 35% drop we forecast back in 2005. But worse than the Great Depression? I don't think so.
Never let the facts get in the way of a good narrative!

Nicole Panter

Nicole just closed on the purchase of a new home with Cornerstone Mortgage. Listen to what she has to say about her experience.

20 startling facts about the US housing market:

1. According to Zillow, 28.4% of all single family homes with a mortgage in the United States are now underwater.
2. Zillow has announced that the average price of a home in the U.S. is about 8% lower than it was a year ago.
3. US home prices have now fallen a whopping 33% from where they were at during the peak of the housing bubble.
4. During the first quarter of 2011, home values declined at the fastest rate since late 2008.
5. According to Zillow, more than 55% of all single family homes with a mortgage in Atlanta have negative equity and more than 68% of all single family homes with a mortgage in Phoenix have negative equity.
6. US home values have fallen an astounding $6.3T since the housing crisis first began.
7. In February, US housing starts experienced their largest decline in 27 years.
8. New home sales in the US are now down 80% from the peak in July 2005.
9. Historically, the percentage of residential mortgages in foreclosure in the United States has tended to hover between 1 and 1.5%. Today, it is up around 4.5%.
10. According to RealtyTrac, foreclosure filings in the United States are projected to increase by another 20% in 2011.
11. It is estimated that 25% of all mortgages in Miami/Dade County are in serious distress and headed for either foreclosure or short sale.
12. Two years ago, the average US homeowner that was being foreclosed upon had not made a mortgage payment in 11 months. Today, the average is being foreclosed upon has not made a mortgage payment in 17 months.
13. Sales of foreclosed homes now represent an all time record 23.7% of the market.
14. 4.5M home loans are now either in some stage of foreclosure or are at least 90 days delinquent.
15. According to the Mortgage Bankers Association, at least 8M Americans are currently at least one month behind on their mortgage payments.
16. In September 2008, 33% of Americans knew someone who had been foreclosed upon or who was facing the threat of foreclosure. Today that number has risen to 48%.
17. During the first quarter of 2011, less new homes were sold in the US than in any three month period ever recorded.
18 According to a recent census report, 13% of all homes in the United States are currently sitting empty.
19. In 1996, 89% of Americans believed that it was better to own a home than to rent one. Today that number has fallen to 63%.
20. According to Zillow, the United States has been in a “housing recession” for 57 straight months without an end in sight.

Even though we continue to hear how difficult it is to get a mortgage now, Fannie Mae still allows you to trade equity in a property. Here is the LINK to the details!

When Karen came to us she was concerned about having to leave her home. We were able to work out several options with her and ultimately choose the one that would allow her to stay in her home. Read Karen's comments below on her experience with Cornerstone Mortgage.

Amanda Wolf

Amanda just closed on the purchase of her new home. Listen to what she has to say about Cornerstone Mortgage.