Real Estate Collapse of the 1980s: History repeats Itself again on the 2000’s:
“I am probably one of the few on this and other blogs who sat thru a RE collapse first hand in Canada back in the early 80′s when I was a banker here in Calgary…”
“I am probably one of the few on this and other blogs who sat thru a RE collapse first hand here in Canada back in the early 80′s when I was a banker here in Calgary. I watched the second mortgage portfolio I managed for National Trust Company go down from 100MM, to about 65MM, in a little over 12 months due to foreclosures and property devaluation.
This was at a time when CMHC financing needed 15% down, and we actually took such obscure concepts as credit worthiness, debt to income ratios and past payment history into account “before” we dished the money out. Also, most second mortgages were in the amount of $15-25K on average, as most houses were not much above $125-150K at the peak. If any you thought it was bad last time………..this time around will make history look like picnic.” …
“I was averaging 75 – 100 foreclosures / quit claims a month over 1983/84. And, I just ran the second mortgage and personal loans department. We also had a humongous first mortgage department with its own problems. Thing is, I distinctly remember foreclosing on a ton of realtors’ spec properties, and also their primary residences, as well as that about 75% of the places we eventually got back had been listed in vain (priced too high) for 12-18 months beforehand.”
– Carioca Canuck at VREAA 27 Dec 2012 5:58pm and 28 Dec 2012 8:28am
ANECDOTE # 2
“I was there, too. Was working for a Trust Company that was scrambling to save its own sorry arse after having dished out too much credit. People were desperate to get loans but easy lending had dried up and rejections were the game of the day if you could not bring collateral. Hardly a day went by when I did not see someone sobbing at the loans officers desk.
They brought in art work and antiques and junk they thought was valuable to persuade the manager. Nobody cared though. You know how much that stuff is really worth when only cold hard cash, bonds or securites will suffice? Not a spit. I was an assistant then and a mere observer but the image stuck. Never get in debt over your head because when the day of reckoning comes even your friendly banker will pull the plug on you and never give it a second thought.
Most people do not realize that internal policy changes at financial institutions where lending is concerned are bureaucratic and very inflexible when the mood changes. It is just a machine that will not be swayed by sentiments and emotion. And all that crap that you thought was valuable is not worth ten cents on the dollar anymore. So I agree with Carioca. This next go-round is going to be quite an experience for the novices in the crowd.”
– Farmer at VREAA 27 Dec 2012 10:53pm
ANECDOTE # 3
“I was a loans officer at a medium sized Credit Union in the 80s.
Heartbreaking. Homeowners were dropping off the keys, walking away.
We did not have the heart to foreclose, ended up as landlords of properties valued way below the mortgage.
After 3 years, the auditors forced us to write down the properties to market value, which almost bankrupted us.”
– Real Estate Tsunami at VREAA 28 Dec 2012 7:11pm
Thanks to Carioca Canuck, Farmer, and Real Estate Tsunami for the above anecdotes.
Interesting to see that three regular readers saw battle during the 80′s RE collapse. There is little substitute for first-hand experience when it comes to markets.
The above comments are from parties who post on Real Estate – related blogs.
(3) of these parties posted comments based on their experiences as employees of various financial Institutions during the ugly part of the 1980’s, which I can still vividly recall. In the late 1970s’ and early 1980’s we had a booming Real Estate market.
Richmond was an interesting time. The Lansdowne Mall had just opened. The City had engaged in a massive rezoning , a new OCP. Land from the Mall, South to Blundell Road, and roughly bounded by Garden City and Gilbert was given higher residential density
We had the “MURB” program , which was a Federal program to encourage building rental units. It involved tax breaks and other investment incentives. This resulted in many (3) story apartment blocks in the aforementioned areas. If not mistaken the terms of the MURB program were that the units had to be rental units for 25 years, then after 25 years they could be sold off as strata units. It should aslo be duly noted that this was probably the last times that Gov’t got involved in rental housing to any degree, and hence multi family strata became a new market.
Much of Richmond in these areas was comprised of 1/2 Acre and One Acre lots…this was a common Single Family lot size at the time in or near the City Center.
Within a short period, entire blocks of houses were being demolished and Apartment blocks built. The rest of the Real Estate market took off as well. I recall, that back then house prices were reported as rising or bid up to approx. $1000 per week, which was a significant amount back then. The average house back then may have been worth $60,000 – $70,000 , and again, this was before the major Asian money influx in the mid 1980’s. I should also point out that few new homes were built where homes previously existed, ie they were often retained.
I have never understood these cycles….why does such a large number of people concurrently feel the sudden urge to buy at once ….ie when a few months prior to a boom there was fewer buyers and more a buyers market. I have always suspected that something is “triggered” by the vested interest to create this herd mentality and then it snowballs.
Regardless, the 1980’s were insane times . The Federal Gov’t had to pull the plug on the MURB program. I recall they had a deadline of Dec.31 that year ….the stipulation being that the project must have its cement foundation poured to remain eligible…. This resulted in many projects busy pouring the week of Christmas up to New Years day.
Then..the hammer came down. The Gov’t jacked interest rates up to 22 %. This is the normal response to an overheated market..aka the “demand” for money increases its cost to borrow. This created a lot of problems as the (3) anecdotes above suggest. People could no longer afford the interest payments and/or the values of their homes dropped…..doubly screwed. The writing was on the wall….a ” NO – WIN ” situation and many simply gave back their homes to the banks aka “the old Jingle Mail”….mail the keys to the bank and walk away. This was unfair to parties that bought homes before this but whose mortgages were up for renewal.
NOW BACK TO THE FUTURE ie 2013
IMHO, the Gov’t and especially the Banksters have learned their lesson from the 1980’s. They were not averse to dramatic “BOOM” price increases in homes. It’s like crack cocaine…everyone is in a euphoria that we are in good times and feel the party will go on forever. Strategically, the Banksters saw the solution as cheap credit and lax lending rules . (aka ” Why shouldn’t the people making minimum wage not be able to own a new $ 400,000 condo ???? “. These same parties don’t see there is a good reason why the legal driving age is 16 and the legal drinking age is 19. maturity and responsibility)
One other thing the banks ” engineered ” was that they would be insured…aka take all the “gravy” with none of the risk. As the anecdotes above suggest, some banks nearly went under.
So, the main point is, this has happened in the past and can happen again.
HOWEVER….Even morseo, there is no parachute or safety net…….. like normal market forces (ie tougher terms to get credit, higher interest rates. The banks had a master plan in place that they had twisted the arm of Gov’t so as to wrack up as much debt as was possible. A Bank’s asset is ” DEBT “. Thus, the banks fully predicted and fully expected that cheap credit would rack up enormous amounts of debt, which would manifest itself as massive increase in bank assets. Of course the politicians can, in the short term, make claims of a booming economy, even try to take credit for it, and all the tax revenue this generates.
The banksters knew the ponzi scheme would collapse…and were ready when it happened. They basically forced the Gov’ts to convert Debt TO Cash, (or the entire economy will collapse blah, blah, blah )which adds to our National Debt. They(Banks) probably don’t want your house or condo….that will cost them overhead, as well as reduce their case for a bailout…ie there is still some value on foreclosed homes…the Banks want, or prefer, ” all cash “ .
Then again as I have noted in the US as an example of our future…..some banks are so corrupt they are claiming homes the banks have no mortgage on…forcing homeowners into court.
I see through various current Real Estate blogs that the foreclosures in BC are mounting, with several examples cited.
This is why I often cite the US as examples. BC has been acknowledged as one the THE most expensive places on earth to live due to obviously -manipulated ….artificially -high housing costs. This is the downside of the concept of a Nation.
When we, the Citizens, lack control, lost control, and/or are outright betrayed, our servants become our traitorous masters, and we are ALL stuck with the bill . The “Nation” now becomes a prison, a massive farm full of serfs, we have ultimately learned nothing from history, gained nothing , and possibly lost everything .
Solution?…keep an eye on Iceland, what they have done is not unique, it has been accomplished before….more on that later.