10 Lessons to Learn as the Housing Market Recovers

Ron Phippsby Ron Phipps, 2012 Immediate Past President, NAR

Headlines abound: The Housing Bust is over… In June, a survey of economists concluded that housing has hit bottom.  Realtors®, homeowners and renters, Americans, and citizens of the world all are sighing with collective relief.  The economy and housing values both have cycles.  It has been more than eighty years since the difference between the top and the bottom was so great.

As Realtors®, we are relieved that we are at the bottom, but we are realistic with the changes in the market and our work.  In the not too distant past, the overwhelming majority of our work was prior to sales agreement, now it can be after.  In that same time, most transactions closed.  The “fallout rate” was nonexistent.  Most sobering is what is now required to get to closing and how many things can derail a transaction for a “willing, ready, and able” buyer.

So we are cautiously engaging the new reality, but first we need to pause.  If we do not learn from history, we are bound to repeat it.  We do not want to repeat the last ten years.  So what are the lessons we should learn?  Here are 10 lessons that come to mind:

  1. The economy cannot recover without housing.
  2. Everyone needs shelter, but not everyone needs to own their shelter.
  3. High homeownership rates are important but they must be sustainable.
  4. Home prices go up and go DOWN.
  5. The process of purchasing /financing a home is more complicated.
  6. Sound underwriting of mortgages is critical.
  7. Home equity should not be used for ordinary living expenses.
  8. Financial reserves for family, companies, and countries are necessary.
  9. Homeowners confidence in the economy is directly related the value of their own homes.
  10. The economy is global.

What lessons did the last decade teach you? We would love to know what you learned from the last cycle.

What is important is that we remember what happened as we prepare to write the future.  Most importantly, we should also have a sense of accomplishment that we endured these life lessons.

There are seasons in the weather: spring, summer, fall and winter.  So there are in economic cycles.  It is great to be at the thaw of winter and the budding of spring.

  1. WH

    When Realtors represent Sellers, our duty should be to get the Seller the highest and best price, but when prices rise so quickly the values of homes can become distorted and the real estate market becomes like a Ponzi scheme, and prices would not be sustainable.
    I hope in the decades to come that Realtors can help temper fast and large value swings and avoid situations like we have now. It affects the economy as a whole.

  2. Tom Meyer has a good point. Could part of the issue with seniors be the interest rate they get on their savings? Low mortgage rates are great, but less than 1% on
    your savings is probably removing some activity from the real estate market. Seniors become a larger part of the market every day.

  3. Cathy Vincelette

    I hope you are right we have hit bottom, But in order to start up this housing market, we need people back to work at decent salaries not minimum wage. When people are confident they have a job to go tomorrow the will spend. We have to push the government to concentrate on bringing jobs back to this country. Until the job market improves the housing market will take a back seat. Low interest rates are not the answer Jobs are. Maybe Congress will hear us in November.

  4. Mael

    I fully agree…. but just food for thought!……..
    Unless we as an industry do not require more education for new Realtors (at least 2 semesters or more) with courses and preparation, we again will have the increase of applicants and new people that jump in the market because they consider it easy money in the good times and with it comes a lot of mistakes and corruption.
    In hindsight a lot of this could have been avoided…………….
    We should be proud of our career and maybe grandfather most of the existing agents, but increasing respect for what we do is essential for the future, we deal with peoples biggest investment in their life’s.
    Present requirements for licensing are to short and not deep enough.
    America is changing and so should we as an industry……….

  5. Roe Leer

    Lack of inventory is a crucial problem that never seems to be addressed by Realtor leadership. Our membership locally, state-wide and nationally will be greatly reduced if Realtors have no homes to sell. The shadow inventory must be brought to the marketplace ASAP or hundreds and thousands of Realtors will be out of business within months. Stop trying to help distressed homeowners stay in a home they do not qualify for. Make the banks foreclose and list their REO properties. We have many buyers who cannot buy due to the low number of available properties and many competing buyers. WE MUST HAVE MORE INVENTORY!

  6. There are many causes for what happened. Including greed, lack of oversight, lack of foresight fraud, etc… But all of these are pretty much unavoidable except for one cause that underlies it all.

    Price fixing of our money. The federal reserve priced the interest rate too low. Had that not occurred we would not have had a bubble. The right interest rate is the market interest rate.

    Central planning price fixing has never worked in the past why do we believe the price of money should be fixed?

    The solution to these bubbles and their bursts is to have sound money, with interest rates dictated by the market.

  7. DeLois Brown Kirkland Jones

    I learned long ago that you don’t buy groceries with gross.

  8. Paul Knipper

    Ron: your list is a ………… 10! I’d like to add a few:
    *Disregard anything that economists say (it’s not callled the dismal science for nothing)
    *Every person, from CEO’s to professional athletes, should be paid on a commission/achievement/production basis (Profits, RBI’s, Touchdowns etc.)
    *Greed is an eternal value. (There will always be Ponzi schemes)
    *It is impossible to legislate morality, but regulation can help.

  9. I agree that home ownership is vital to recovery of the economy but also is the ability to buy and sell. An additional sales tax will kill hard earned equity and slow down the turn over process. Also, jobs. Without a strong job market we have no hope whatsoever! There are Military personnel being Rifed (reduction in force) after 15 to18 years of service, what is that about?

  10. Great job Ron! Can’t agree more, especially using a home as a bank account. I am going to share this, too. My mother always taught me to learn from my mistakes. I never really liked history when I was younger, but have grown very fond of it through my more mature years and realize that history is our greatest teacher. The pause is necessary. As we know “doing the same thing over and over expecting different results” is the definition of insanity.

  11. Suzette Andrews

    One person’s greed destroys thousands of other’s financial stability – jobs, food, homes, retirement, college funds…the list goes on and on…

    Every word spoken and every deed done ultimately impacts the entire universe in a positive or negative way.

  12. JJ GAGNE

    To me the #1 lesson learned is:

    If wages are not raising at a equal nor near equal rate, then we are in a bubble…. and bubbles “burst”!

  13. Paul Gaudio

    Great list! But, one additional comment for the list, we need to look at the appraisal industry. An appraisal is just one persons opinion of value and, regardless of what appraisers say it is very subjective or else you would not have situations where two appraisals come in one at $100,000 and the 2nd at $40,000. In my opinion, if you want to keep appraisals in the approval process the price should on have to come within a range of 5-10%. I think it is ludicrous to allow one person to determine equity in a home, under writing guidlines are what is important. What a ready willing and able buyer is willing to pay is “MARKET VALUE”. And in reference to a comment above “great housing is improving but, what we need is jobs”! The reality is there is a reason that the housing sector has brought us out of 95% of our economic down turns and that is because housing creates more jobs than another sector. Just think about it, new construction creates millions of jobs, people buying houses employs Realtors (after all a realtor not selling and closing homes is really out of work and more importantly is all the spending housing creates, people buy new furinishings, decor, updates, appliances and the list goes on and on. Housing creates a tremendous amount of spending which corelates into job growth and a growing economy. So, do not understimate the power of the housing industry to recover an economy!

  14. Great list. The only thing I would like to add is that everyone needs to remember that the housing industry does not make the economy, it comes on after the econiomy strengthens with new jobs and helps build on the economy as it gets stronger.

  15. Chuck Wiercinski CCIM, CRB, GRI

    As has been the case in all the past down cycles the well educated, trained and experienced agents were better prepared to deal with the changing market. Which proves that the investment in yourself maybe your greatest asset to a long term real estate career.

  16. Pete Tripp

    Are these the same economist who predicted the soft landing in 2007? I think we still have a ways to go.

  17. A silver lining in this housing crisis has been the spirit of cooperation between the agents. Realtors are leaving their ego’s at the home. Working towards a win-win transaction appears to be the order of the day.

  18. Home equity should not be used for living expenses: a great comment. It should also not be used as a down payment for another purchase. As you stated, property values go UP and they go DOWN. As such, home equity loans (unless they are home improvement loans) devalue your property. The biggest mistake, in my opinion, made by government was in bailing out the banks. Consider this: a true appraisal of every underwater home followed by a justified refund from the government to trusting home buyers. Why reward unethical business practices by banks and appraisers? As the net gets cast and more fraud is uncovered, tenacles infect all of us whether buyers, sellers, or non-participant observers.

  19. Gina Liebe

    Those are very spot on lessons to be learned. However, we need more jobs to make the market soar, not slow crawl.

  20. Denise Dauphinais, Broker

    In good or bad markets, homeowners need to stay within their budget. What about buying under what you can comfortably afford? What a unique concept. . Many were caught up in buying more than they really could afford and with very little money as a down payment. They were the ones who for the most part lost their homes. Also, those who kept using their homes like a piggy bank and refinancing and pulling money out to spend on goodies, also lost when values went down. It appears that the markets with the highest percentage of distressed homes correlate to moderate or lower income areas. as well as borrowers who did not understand the financial implications of homeownership, or the intricacies of loan documents they signed.

  21. You are right about your comments you made and I do want to add to them,
    Once a person is working and finds a job that when considering buying their next home as they are again able to, that the potential Buyer, this time around, takes into consideration not to get into a big hurry to qualify but to listen to the options of saving up to put 20% down towards purchase of a home and this time doesn’t just get talked into any home but makes sure that the Buyer is getting a home that the Buyer can afford to be in regardless of what his next door neighbor has but by going with his income that he brings in each month and only go by the requirements of the 28% rule. Only use 28% of the Buyers monthly earned income to go towards a house payment. The less stress a person has, the less he has to worry about not having a home to live in at all.

    Live in a home that you can afford, rather than looking to qualify for a home that a buyer would rather live in because it is so big or so georgeous. All of that can come later when and if the Buyers income or job title changes or increases down the road if ever!

    Live in the means you currently have and not get ahead of yourself before the time comes. Less stress in a persons life, the more that person can enjoy all aspects of this life, that this life has to offer. Life is NOT worth as much, when wondering how the next payment is going to get paid.
    Life is pretty good when everything owing, can get paid for each month,
    Without Worry!!!

  22. Tracy Whitworth

    1.The economy cannot recover without housing.
    I’d like to reword this: housing will not recover without jobs. When people lose their jobs, they lose their homes.

    A strong economy produces private sector jobs. When the economy is strong, the housing market will return to be the engine that drives millions of jobs in banking, real estate, home inspection, home appraisal, construction, retail, architecture, home improvement…the list is endless.

  23. Ron,
    I cannot agree more with what you said. The most home sellers got themselves in trouble are using all their money to max and don’t participate something could go wrong. Our real estate market is coming back this year after 3 solid years down.

  24. Well said, your list summarizes my experiences in the past ten years as a realtor. Realism and common sense are indeed needed components as we move forward. Homeownership is a priviledge and comes with responsibilities. Enough of the concept of “entitlement” it certainly took its toll on our housing industry for home buyers, investors and related institutions. Unfortunately the lesson does not seem learned as the mindset of many and risks the continued bankruptcy of our institutions as we know and have enjoyed them .

  25. Gerry Bushnell

    Cheryl Flynn nailed it. We need to realize who pulls the strings and why. This economic collapse was an incredible money maker for the powers that be. They planned the outcome and will continue to manipulate the worlds financial markets and wars to gain power and control. Your loss is their gain. Watch “Thrive” the movie to truly understand what is going on.

  26. Spaceball

    A. Stevenson provided sound judgement in the 50’s; the lesson learned is, the Political and Banking system are corrupt. Are we now begining to see 125% LTV again ? Are there more limited Funds (0-3% down)Transactions today vs 4 years ago ?
    Where is the 20 year shadow inventory now ? Who’s purchasing those properties? Has there been a recent run on New Jobs ? How is that Credit History piling up ?

    The gathering of significantly wide ranging information (Refi or Other) now required, may lead one to believe the future will leave a very dim view on the public for curing Any shortfall during the “Next Downfall, as Markets always go up and Down, per notice”. Banksters and Politi cons – will truly be the only survivors; if not, why the extravagant search for every ounce of paper and triple support for anything of value ? There are still Million Dollar Purchases with “0” down…..interesting times for sure.

  27. Dallas Coffield

    Great article. I know when the build up was going on, I heard too many folks agreeing on the priciple that it was never-ending. That, of course is faulty as we all know today. While housing is a great piece of the puzzle that makes up economic recovery, it is only a piece. We can not recover without better stability in the job market, better cash flow from the consumer, and better lending practices from the banks. While I don’t believe that anyone should ever again be able to purchase a home with no money or obtain 100+% financing, I do believe that there has been a stranglehold put on the consumer by our financial institutions. Real Estate, however, has and will be a harbinger of things to come in our market. Here in Florida that fact is most obvious. The 1920s is a prime example. The build up and boom in FL real estate ushered in an era of huge real estate gains. However, the FL real estate market went bust in 1926 and helped to usher in the great depression. We had a similar situation in the recent boom/bust cycle.
    Personally, I also believe that we will not see great faith in our banks until something like Glass-Steagall is instituted again. Just my two cents.

  28. We might be at the bottom of the trough in the real estate market and we will most likley stay in it for the next 24 months as the banks continue to slowly release their non-perfoming assets via foreclosures. I think the banks learned the biggest lesson of all-just because you have a heart beat doesn’t mean you can afford to buy a house.

  29. Eve Hiner

    I agree with Dallas Coffield that the banking industry needs more restrictions (i.e. Glass-Steagall), not less. For an educational peek at what contributed to the near financial collapse of the U.S. and other countries around the world, I recommend watching the documentary film “Inside Job”.

  30. These are all excellent points. The one that stands out for me is “The process of purchasing and financing a home is more complicated”. It is critical to work with the top mortgage professionals to close a sale.

    Because of the new standards of qualification and testing, Mortgage Brokers are the most vetted professionals in the industry. This wasn’t true a few years ago, but it is now. Mortgage Brokers also have multiple sources of funding with different criteria. If I only had one source of money, I would be unable to complete approximately 50% of our closed loans. We all should be working together for a zero fall out.

  31. I find many interesting comments here. The Real Estate market gets a lot of the blame for the economic collapse when in actuality it was just a small piece of a larger problem. The buyer’s who bought their homes on FHA or VA loans were not the problem. Buyer’s who bought at the top of the market with ZERO down were a small part. The people who used their homes as credit cards can take another part of the blame. The “Banks” who got bailed out and were the ones pushing these loans can take a “BIG’ chunk of the blame. Gready corporations who cheated at the game can take another large chunk. Part of it is just normal economic cycles. I see this problem with the Banks happening again now. Banks doing refinances at 100% LTV. As to getting out of this market slump, Real Estate was the leader in getting us into it and it will be the leader in getting us out. We have a large built up Buyer base trying to find good homes right now but because new construction single family detached homes have not been built for the last 5 to 7 years there is a bigs shortage. The only choice for a lot of buyers is the Short sale or forclosure. These are a long and frustrating process and many never get completed. Coments above say that we need to see an improved job market before the housing market can get healthy don’t realize that the housing market is the largest creator of these jobs. So which came first the chicken or the egg? Many builders went broke durring this last round over the last 7 years and are strugling for away to get started building again and banks are not helping. The govenment needs programs in place to help get building going again. This in turn will produce a wide range of new jobs which in turn will create a whole new group of buyers for these new homes. This also stimulate commercial construction which puts more people back to work and created even more buyers. I hope the FED sees this and can help in this area. If noe the economy will continue its slow climb whill more people loose their homes to forclosure creating more short sales and more bad product for the Real Estate industry.

  32. Bob Vasquez

    I am pleased to read how many real estate professionals mentioned the word JOBS in their replies. What CAR and NAR need to do is lobby for jobs, jobs, jobs. Both political parties have always agreed on infrastructure spending; our roads, bridges, etc. need upgrading and that kind of spending will help to stimulate the job market. I would like to read an article by CAR or NAR about what CAR and NAR are doing, specifically, to get Congress to adopt policies for infrastructure (capital) improvements and to get the U.S. Senate to stop filibustering legislation the will encourage job growth.

  33. These last years were hard for many professionals and it can feel like we’ve reached the bottom and it’s all going to get better from here.


    As you said, the economy is seasonal. It goes up and down and up and down.

    Therefore, it is entirely possible that this will happen again in our lifetime. So the smart professional will not only learn from the past couple of years to improve their short-term business prospects as the economy picks up, they will also consider how they can ensure their business will survive if something similar happens again in 5 to 15 years.

  34. Nice summary of our pain. Jobs you say. HA HA HA. Doing what? We outsource tech centers and call centers. NoBody is buying anything so why make more widgets. FDR allocated funding to build state parks and roads, etc. I think we need the government to come up with a plan. I don’t know what Small Business can do if nobody is buying. And keep the jobs in the USA.

  35. What we really need to learn is that members of our real estate industry need to be more actively involved in the legislative process ~ and, yes, in the political process!And never before so urgently as in the next 2 1/2 months!!!

    My original real estate license is dated November 1975, four years ahead of our first energy [oil!] crises under Jimmy Carter, rising interest rates [up to 16-18%], and a housing/building slowdown that didn’t turn around until 1986-87. And I clearly remember the well-intentioned beginning of our current fiasco ~ the The Community Reinvestment Act of 1977.

    The CRA sought to address discrimination in loans made to individuals and businesses from low and moderate-income neighborhoods. Considered a necessity, I’m sure, with the exorbitant home loan interest rates available. The original Act was passed by the 95th United States Congress and signed into law by President Jimmy Carter on October 12, 1977. Several legislative and regulatory revisions have since been enacted.

    Leaders of the housing industry applauded the move, I am sure, as a life-line to a struggling segment of our economy. But none seemed to understand the long fuse attached to the Act, which finally ignited and fizzled along to finally burst the now famous “housing bubble” of 2006.

    We Realtors should have been more proactive in the ’80’s and ’90’s, insisting on more common sense in Washington regarding the housing industry. I recall a Realtor luncheon hosted by our local Countrywide office during that era, held to roll out their new 103% loan program ~ zero down, 100% first mortgage plus a 3% second to cover closing costs!!! My hackles rose, but most of my peers welcomed the opportunity to make a few more sales and scurried out to find those lucky new buyers!

    Well, we know where Countrywide is today, along with the poor families who were sucked into their schemes. Oh, well, live and learn ~ I hope!

    Anyone interested should read the legislative history of CRA at: http://en.wikipedia.org/wiki/Community_Reinvestment_Act

    And: : http://www.nytimes.com/2011/05/29/books/review/book-review-reckless-endangerment-by-gretchen-morgenson-and-joshua-rosner.html

    Because if we don’t learn from our history ~ we are destined to repeat it!

    With the most important election in our lifetime only 2 1/2 months away, we need to understand how our economy got to this frightening point ~ with the best of intentions of helping those who have trouble helping themselves. And we need to stop and think ~ a lot! Are we really doing people a favor by giving them what they haven’t earned? Or are we just enabling them to become more dependent upon the government [us ~ taxpaayers!] to bail them out?

    Remember the quote attributed to Abraham Lincoln, “Give a man a fish and feed him for a day. Teach him to fish and feed him for life.”

  36. Bob Vasquez

    If you really want to learn from history, study the Bush/Cheney years and study them well.

  37. Mark Vedder

    In my 38 years I learned we need to adapt no matter how long we do this. The false market shoved on our careers by a democratic congress putting unfit buyers in a place they shouldn’t be caused a tidel wave of inventory when people lost their homes. So the problem was two fold. Government trying to puersuade the market caused the false inflation in prices and when they fell it seemed worse that it was. The reality was a home owned from 2000 to today went up an average of 13% so ownership when within a buyers budget is a great thing. 2 the recovery needs to happen again through real buyers and not government trying to market false consumers to move the market. The $8,000 tax credit only gave free money to most buyers who would buy anyway and forced a surge of spring buyers and when fall came the market was more flat than usual and that I feel kept the recovery and prices from happen gaining sooner. I learned lending institutions took the hit and really didn’t know how to market their inventory when they got it back. My suspicions again are the garrauntees they got from government bailing out lenders again allowing the lenders to sell inventory under market stunted the chance for owners who now wanted to sell to get fair market value. The long and short of it is a good Realtor now when informed to best inform the consumer is worth their weight in gold so hold you heads high and do your home work as well as appreciate and share your wisdom with each other. i learn from agents just starting and thanks for the help. .

  38. Tammy Williams

    I had to refi do to husbands getting locked up. He knew all the small detailed prints that i didnt understand on loan paperwork. I got 3 estimates to refri, 1st one was to high. 2nd one distroyed n stoled my home. When i had escrow paper drawn up going with 3rd company, i learned my home was no longer in my name. Company #2 had forged my name on the grant deed to my home and had someone elses name listed on the deed stating it was a gift. All during an important time frame i was going to court fighting to keep my kids. As part of resulting from the unstibility of keeping my home, Against a judges court ruling, CPS took my kids. The shame of greed lies and forgery of trusted rep to help those who need. Not the case for me. My husband financial supported the household my entire marriage of 15yrs. I had no clue where to begin on supporting household exspenses or experience to seek employment to do so. I had 2kids and one on the way during all this. At the end of this mess i was in an emergency c section 2months early delivering my son 3lbs 9oz. kept in icu for a week. 3rd day in icu they went to my home and boarded me out. Released from hospital a week later to have no home to return to. If i had moneyor knowledge to sue the people who wronged me, i would have. I filed a fraud report with police dpt and resulted nothing. I gave company name reps name n numbers, copies of paperwork inclluding an audit report etc. I lost everything. Trust nobody. If i could of made my story in the newspaper, i probably could of got an attorney to take it to court. Ive been told its an open shut case. Not with out an attorney. 1 year left before the Statue of Limations is up. If you can help me in anyway i would love to hear from you. Im still without a home 2years later. Ive been told it would be cheaper for the title company to buy me another home rather than to see this case in court. Thank you

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