By Joe Natale, Senior Correspondent
Location is a determining factor in real estate, and Springfield’s location in the Midwest is buffering it from the worse of the current housing crisis.
But it did not matter where you lived during the housing crisis of the late 1970s. Seasoned Springfield Realtors who endured those dark days of a generation ago indicated that there are more contrasts than comparisons between the two eras.
“You never really have two situations exactly alike, especially when it comes to economics,” said Ron Ladley of Charles Robbins Realtors. “It’s a different kind of crisis.”
Ladley said the “last big problem in real estate” was during the Carter Administration. “In 1977 there was the energy crisis and by 1978 we were on the way to 22 percent interest rates. Nobody was going to buy a house.”
Ladley recalled that in January 1980, 45 houses were sold in Springfield. The real estate industry was decimated during that time period. Prior to the crisis there were 125 brokerage firms in Springfield with 1,250 licensed sales people. Now, there are 50 firms and 600 sales people. But there was still more pain rippling through the economy.
“Car companies were next,” Ladley said. “You couldn’t give away a Chrysler dealership.”
During that period, farmland prices took a hit. Ladley said that sector of the real estate market is doing much better now than in the 1970s.
Ladley said qualifying for a loan in the 1970s was much stricter and institutions like Fannie Mae and Freddie Mac were not major players.
“Things were different in the Carter days,” Ladley said. “Local banks loaned to local people before the savings and loans crash. Savings and loans and local banks had their own standards,” Ladley said.
In the pre-subprime era, the buyer had to put up 5 to 10 percent and be up-to-date on other payments to qualify for a home loan. Any loan over 80 percent would have to have mortgage insurance.
“The mortgage insurance companies were looking at buyers,” said Ladley, and gradually banks began selling loans to Fannie Mae.
“Most banks did not shelve loans; they sold them” Ladley said. “Banks did the servicing.”
Ladley said initially Fannie Mae had higher standards than many banks and mortgage insurance companies. Ladley said he incorporated Fannie Mae standards in the course work of his National Academy of Real Estate. But by the 1990s, Ladley said banks quit doing their own pre-qualifying.
“They used Fannie Mae,” Ladley said. “As Fannie Mae relaxed standards, no one was looking at them. Fannie Mae relaxed the standards and people got loans who shouldn’t.”
Ladley said home prices in Sunbelt states escalated wildly.
“In Nevada, appreciations went up 45 percent in one year,” Ladley said. “When the wind went out of the sail, a house was worth less than what it was appraised for, and people walked away from it. The financial problems caused by banks wasn’t really housing problem. Such loose credit and unreasonable lending. The total blame in my opinion in the housing market is flat-out on Fannie Mae,” Ladley said.
Pete Steward of RE/MAX Professionals said, “The difference today is there is more money available.”
“In October 1979, the real estate market was like a ball rolling across the table, and it fell off,” Steward said, as a major to recovery in those days was the usury (predatory lending) law in Illinois.
“No one could loan money at more than 12 percent,” Steward said. “Interest rates soared to the low 20s. It didn’t matter who you were, you couldn’t get a loan.”
A legislative remedy was sought and Steward said he remembers, “standing in the gallery of the legislature with my peers to change the usury laws so people could borrow.”
The recent federal economic stimulus act includes an $8,000 credit for homebuyers, and the 33-year real estate veteran asked, “How can it hurt?”
“It has to help homebuyers,” Steward said. “I’m not an economist, I don’t know who it will help in the grand scheme.”
Steward said that overall, Springfield is weathering the storm in housing “compared to what we see in other markets around the nation. Our sales are on par with 2002 and 2003.”
Kevin Graham said there are “lots of contrasts” between the late 1970s and today.
Graham, owner and founder of Real Estate Associates, said, “The pendulum has swung from 1979, 1980 and 1981 when interest rates went as high as 20 percent.”
“Now we have excellent rates, and there are federal and state programs helping first-time homeowners get into the market,” Graham said.
While there is more mortgage money available now than in the late 1970s, back then some creative financing packages were put together with contract for deeds and loan assumptions.
“There would be a combination of two or three mortgages,” Graham said. “The seller would contract for deed and loan assumptions. The seller would get a carry-back loan. It was seller financing. The lender was happy because someone assumed the loan.
“Nowadays, loan assumption not prevalent at all because loan money is available,” Graham said. “We have 22 lenders that e-mail us everyday and interest rates are around 5 percent. There is a common misconception that there is not loan money available here. In Metro areas yes, but in Springfield we have banks with money available."
Graham said an increasing number of banks are offering government loans from federal agencies like the Veterans Administration and Farmers Home Administration; and from the rural loans and Illinois Department of Housing loans.
“Anybody who buys a home in 2009 will get a $8,000 tax credit,” Graham said of the economic stimulus bill. The IRS will come out with rulings shortly. It is a wonderful way to stir the market. It’s an important part of the stimulus program. They’ll see the bottom line at tax time.
“Instead of the trickle-down effect, we will be having a trickle-up effect,” Graham said.
The median price of a home in Springfield is $107,000 and more than 2,000 homes were sold last year.
“The price range held pretty firm,” Graham said. “The number of sales did decrease about 12-14 percent, but our price held firm. Even though there were fewer sales, prices remained steady. The price range that was hurt was the high market. First-time home buyers and move-up homes remained very healthy.”
Graham said that over the years, the cost of a home in the Midwest appreciated 2 to 4 percent annually, compared to 10 to 30 percent on the east and west coasts.
“The east and west coasts had remarkable gains and losses,” Graham said. “In Springfield a $75,000 home can make $100,000 to $120,000 in a five-year period. On the coasts, a $200,000 home can become a $300,000 home very quickly, but it can go down.”
Graham foresees nothing happening here dramatically because of the white collar-based economy, “as long as insurance and banking stay steady.”
“Fiat and Pillsbury [major employers in Springfield] were lost in the 1970s,” Graham said, as government, insurance and hospital jobs filled the manufacturing and industrial void.
Looking at major health care employers like Springfield Clinic, Memorial Medical Center and St. John’s Hospital, Graham said, “Those places are looking for workers. The switch from blue collar to white collar has kept the real estate market active,” Graham said, as blue-collar workers tend to rent while white-collar workers are homeowners.
Graham cited that home ownership is up to 65 percent homeowners compared to 40-45 percent in 1970s.
“Education is a big part of that,” Graham said. “Now, there are more educated buyers.”
The real estate industry has a much more potent tool than they did: The Internet.
“The Internet is a wonderful tool,” Graham said. “It is a good source of information for prospects to get educated and knowlegable of what the real estate market is doing.”
Seventy-five percent of buyers have gone to the Internet as a source.
Banks, mortgage brokers, title companies have Web sites to educate buyers about interest rates, and sites have loan calculators.
Graham said that the Internet provides virtual tours, tax information and school district information in order to educate homebuyers about costs, neighborhoods and locations.
Graham said another contrast between the late 1970s and now is that Realtors have gone from neighborhood, village, geographic specialists to niche players. A firm could focus on residential property; subdivision development; farmland, commercial or other income properties.”
“In the next five to 10 years, there will be mergers and acquisitions with fewer firms and some companies becoming franchise oriented,” Graham said. “All of those companies will have their own Web sites with promotions of the property they like to sell.”
“Our firm specialized in residential, but others specialized in farms, duplexes, townhouses or commercial buildings. Firms today want people from all walks of life,” Graham said.
Joe Natale is a freelance writer from Springfield.
