What We (Should Have) Learned from the Recession
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BUILD lays out the hard lessons learned from the past few years, and has their fingers crossed that history doesn't repeat itself.
[Photo Credit: Wall Paper Dev]
We don’t know about other parts of the country, but here in Seattle, in what seems to be the blink of an eye, the free-wheeling real estate times are back. The not-so-long-ago “too much” inventory of housing has suddenly vanished, banks are throwing nearly free money at homebuyers, and people are outbidding each other like it’s cattle day at the livestock auction.
As an example, a friend of ours recently sold his 2 bedroom, 1.75 bath working-class house in a decent neighborhood. Within a week, he had four offers, each arrived with a personal letter from the potential buyers (more on this in a moment) and supplemented with an escalator clause – a written commitment that if another offer comes in higher than theirs, they will automatically beat the higher offer by 5 or 10%. The house was off the market within days at a price well above the asking price. Our friend’s head was spinning with equal parts amazement and apprehension. There is a story similar to this every time we talk with someone who has just sold their house or is in the process of selling in or around Seattle.
With competition this fierce, the escalator clause has become standard practice, and extending an offer without one most likely excludes an offer from even being considered. This has created the all too familiar real estate market known as “the person with the most money wins.” To circumnavigate the plain logic of more money = house, buyers have initiated the personalized letter movement. This involves a letter written (by hand, if you’re sly) from the buyer to the seller expressing how much they love the house, that they picture their kids growing up there, and how great it will be to grow old on that wonderful front porch, etc. These letters are intended to tug at the heart-strings (as extra incentive to the bag-o-money-strings) and apparently, they work often enough that most buyers are including them with their purchase offers.
The takeaway from all of this is that the crazy times are back (already!): The term “foreclosure” has been relegated to the vernacular archives, buyers and sellers are losing their sensibility, and if we close our eyes and focus our hearing, we swear we can hear the faint sound of that bubble inflating again. We’re finding ourselves scratching our heads –Didn’t we just go through this ridiculous cycle?
Being fully entrenched in the architecture and construction industry, we were front and center to witness the havoc wreaked by the last real estate bubble: to the built-environment, to communities, and to individuals. We were all there. It was ugly. Very few people “won” and the fabric that connects our towns and cities suffered immensely. We lost trust in our banks, questioned owning property, and pledged not to do this again. Remember?
Here at BUILD World Headquarters we’re committed to proceeding sensibly. With no intention of going down this road again, we’ve put together our Top 5 List of things we learned from the recession –or at the very least, things we should have learned. Feel free to add yours in the comments section – we always love hearing from you.
1. Real estate bubbles are fueled by greed. The news may focus on stories about sparse inventory, the shady industry of sub-prime loans or the Icelandic banking system but, in our humble opinion, the heart of it all is greed. Limit the bubble by curbing the greed.
2. Behaving like communities puts all of us further ahead than behaving like individuals. If the recession taught us anything, it’s that we’re all in this together.
3. Your home should be an investment in family, lifestyle and community to the same degree that it’s a financial investment. Constantly trading up houses every 2 years to minimize real estate taxes and maximize personal profits at the expense of everything else weakens communities, promotes disposable housing, and inflates the bubble.
4. Most of us are happier with balance. The architecture and construction industries stand to gain a great amount from a real estate bubble. The phone rings off the hook, we get to pick and choose which jobs we take and we’re all crazy busy. But like most people we know, we’d prefer to maintain the sanity of balance in our life and in our work. Even if it means not being swamped with work flooding through the door.
5. Bubbles encourage crappy architecture. In the high-rolling times leading up to the 2007-2012 financial crisis we noticed that the work being produced in the Seattle area was unusually bipolar. New developments were either gratuitous and obscenely expensive, as exemplified by the EMP, or they were disposable 4-packs with short life spans. And a dearth of project types in between.
We’re not trying to be all doom and gloom here, but as the real estate craziness escalates we find it useful to remind ourselves why bubbles (and the actions leading up to them) are unsustainable.
Keep both feet on the ground and cheers from Team BUILD