Within the past year, we in the financial industry have witnessed catastrophic economic changes like never before seen in modern times. The change, while seeming to erupt from a typical soft market, exploded into a multifaceted economic tsunami of biblical proportions. It resulted in a complete economic collapse of the underpinning of our financial system and affected every part of our lives.
We have, and are continuing to experience, many negative effects from this crisis, both at a personal level and a professional level. Personally, we have lost pride, mutual funds, stocks, income, jobs, credit, homes, cars and our professions. At a professional level, we have lost accounts, transactions, clients, co-workers, credibility, bosses and subordinates. We have lost much of our professional independence to the heavy hand of government regulation, and the list goes on and on.
We have also experienced various states of mind, including sadness, bewilderment, anger, disappointment, emptiness, pain, fear and, yes, a bit of hate.
It is time to get over it. While not all of the negative conditions are behind us, it is safe to say that most is, and it is time to move on. Yes, there will be other shoes to drop, but we have seen the worst. We are wiser, tougher, leaner and meaner than we were in the past. We serve no purpose by worrying, pouting, whining and generally serving as negative examples to those around us. In short, we are better people now after having weathered this storm.
The economic meltdown, in a strange and bizarre sort of way, has opened up opportunity that most of us have never experienced before. It has thinned out the ranks, eliminating those among us who had reached a level of professional incompetence. The storm has pruned the tree. It has reduced the price of property in many places to more affordable levels. It has provided many of us with more of a sense of appreciation for those assets that we do have left, including friends and family. Most of us are less likely to invest in risky ventures than we were when the market drove us in that direction. Perhaps in this regard, we will have more confidence in ourselves and in our decisions. Each of us now has a clean slate of sorts to reprove our worth in our profession. The chalk is there, and who better than us to fill the slate with positive and productive penmanship. Yes, the circumstances and the rules will be different. We will find new horizons, there will be new demands, and we will be able to taste the wine with a cleaner pallet.
In realistic and specific terms, what will be really different in the financial industry? Generalizing is easier than being specific; however, I will throw out a few issues and conditions, which we may find ourselves looking at in our profession over the next few years.
Fewer people will own homes if recent reports are to be believed. Rather than looking at homeownership at the 70 percent level, we will probably be looking at levels in the mid-to-low 60s. That does not mean one-third of us will never own homes, but we may not own them at the same time. We are likely to see younger people moving up the ladder to homeownership, while older people sell their homes and move into facilities offering more care with less maintenance.
We will all own relatively less expensive homes. More of us will be content to stay in the smaller home and make it our palace, rather than borrow more than we can afford in an effort to chase the unrealistic versions of the American dream. Home values will stabilize, but not increase so fast in the future. Fewer people will be owning homes, and tighter credit will curb demand.
There is a lot of talk about more appraiser independence or less pressure from those with a stake in closing a transaction. This would lead one to believe that appraisals will be more accurate. While that is a good goal, it is a lofty one. There will be, at a minimum, more emphasis placed upon separation between those selling loans and those performing the appraisal. There will be appraisal management companies, but they will not take over the business as some have suggested. Banks will continue to order appraisals directly from appraisers. Fewer appraisals will be ordered by mortgage brokers.
We as a group will have less debt going forward. Credit will be harder to get and people will have more equity in their homes. Credit card debt will be tighter and fewer of us will be tempted to run up large, unsecured debt. We will have less reason to refinance our homes to pay for credit card debt. That will be a very good thing.
In the end, the finance industry will be smaller. There will be fewer loans and fewer new homes. More emphasis will be placed on quality and less on quantity. It will be a long time before we see home prices increasing at such a frantic pace as 25 and 30 percent per year. The numbers of new homes constructed each year will be smaller. It may be just a while before we see politicians placing the taxpayers’ money at risk at the frantic pace, which we saw recently. Would that not be refreshing?
In a nutshell, we are in for some right-sizing of our financial system, which has been long overdue. We will be just fine and, who knows, we may just look back on the past and say it was time for it to happen and that we are better for it.
Charlie W. Elliott Jr., MAI, SRA, is president of Elliott & Company Appraisers, a national real estate appraisal company. He can be reached at (800) 854-5889 or visit his company’s Web site, www.appraisalsanywhere.com.
“The economic meltdown, in a strange and bizarre sort of way, has opened up opportunity that most of us have never experienced before. It has thinned out the ranks, eliminating those among us who had reached a level of professional incompetence.”