I have spent the last couple of days looking at data, and I'm thinking how bad it's been but I'm hopeful that the worst is past.
In the middle of the last decade, things were going gangbusters. Each year, home sales were setting new records in the Triangle. Builders were going full throttle. In 2007, there were more than 4,400 spec homes on the market.
But then the housing market hit the wall. The first sign of this was in the fourth quarter of 2006, when housing sales slumped. The subprime crisis that was spreading around the nation had caught up with the Triangle.
You remember the subprime crisis. It became very easy to buy a house with less than stellar credit (i.e., subprime) and people piled into the housing market, driving up demand and driving up the value of homes.
One big problem is that our taste in homes was outstripping our ability to pay. That's where easy credit will lead you.
Between 1989 and 2006, median household income in Raleigh grew 57 percent. The median value of homes grew 99 percent. In Cary, the income growth was 75 percent; the home price increase was 126 percent.
(This gap was nothing compared to other parts of the country, incidentally. In Las Vegas, income doubled, home prices increased five times.)
People got in trouble with their mortgages, many of which were adjustable and started resetting higher. Meanwhile, just about everyone who wanted a home had one, and the horde of buyers thinned out.
The housing market cooled off considerably, even as builders kept building, and prices started levelling off and heading south. Many people suddenly found themselves underwater, as home values dropped below the mortgages. They were also struggling to make payments, and many people walked away from their homes.
Lots of subprime loans went bad. That led to the financial crisis, as banks and others found themselves holding mortgage-backed securities that were backed by bad loans, and they had to start writing them down, taking huge losses.
By the fall of 2008, we were in a classic financial panic. Lehman Brothers went bust, which scared the heck out of everone. The government had to take over Fannie Mae and Freddie Mac. The financial markets locked up. Builders went bust. All the businesses that depended on a thriving residential construction industry got creamed. Workers across the economy started getting laid off by the hundreds of thousands, which only made things worse, because then more people couldn't make their mortgage payments, and foreclosures flooded the market, sending prices plummeting in many cities. It was awful.
In Wake County, the impact was substantial. From May 2005 to May 2006, the number of people working in Wake County grew by 23,000. From May 2008 to May 2009, the number of Wake people working dropped by nearly 17,000. The economy was going in reverse.
A lot of builders stopped building, either because they went bust or because they were no longer willing to put up a home without a qualified buyer. Fewer subdisivions are filled with spec homes. Today, as a result, there are less than 1,500 new homes in the Triangle that are completed and for sale. Four years ago, as I said above, there were more than 4,400.
In the last few years, the inventory of new homes has steadily declined. I'm not predicting there's going to be a shortage of new homes to look at, but I could see this scenario. Let's say we get past the November election, and Congress reaches a budget deal that keeps us from falling off the so-called fiscal cliff you will be hearing an enormous amount about in the next five months. Let's say the Fed stays accommodative and Europe doesn't go bust. Let's say growth continues on its unimpressive but non-recession 2 percent track.
If all these things happen, unemployment will keep ticking down and more buyers will be coming into the housing market. There is a lot of pent-up demand. Apartment vacancy rates are the lowest they have been in a decade. Rents in the Triangle went up 5.2 percent in the first quarter of this year, compared with the same period a year ago. There are a lot of potential homebuyers out there, ready to buy entry-level homes. And those sales would allow entry-level homeowners to become move-up homeowners, and so on and so on.
We've been digging out of a mess for the past four years. It's been called the Great Recession, and technically, according to economists, it's been over for a while. But the psychological impact of it has been tremendous, and the discord in Washington has made it worse.
As a result, this recovery hasn't felt anything like any recovery I've seen in my lifetime.
Wake's unemployment rate, which had been as low as 3.2 percent in the spring of 2007, peaked at 9.4 percent in the winter of 2010. Today, it stands at 7.5 percent. Lower, but still way too high for a dynamic county like Wake.
We don't have any control over what happens in Europe, but Congress has complete control over our fiscal situation. My sense is that if we could get a consensus on the deficit and tax policy and get a plan in place, that would take a big wet blanket off the economy.