Before I was a Realtor selling resale homes, I was a builder’s representative; I sat at a model home complex and sold tract homes. I was fortunate to have married into a family that worked for a large home builder in Southern California called S & S Construction, so I had an “In”. I began my career as a new homes salesman in 1990 in Danville, Ca. Danville is an upscale community in San Francisco’s east bay. I got my license about the same time as the 1988 housing bubble crashed. Interest rates had just dropped to below 11% because the Federal Reserve felt it necessary to add stimulus to the economy by bringing down rates. The economy was stumbling following a period of unprecedented home appreciation. The 1988 boom actually started somewhere in late 1987, not long after what was has become known as Black Monday, the day the stock market crashed. Leary of the volatile stock market, people looked to housing as a safe place to put their money. Also in 1987 the Fed was bringing down rates after having raised them over a period of a years in response to spiraling inflation. For those too young to remember, in 1981 the Prime Rate actually neared 21%. I remember upon learning that I could get a student loan at 7%, my father said, “Take the money.”
Inflation is when the costs of all goods and services are increasing and is usually tied to the declining value of a currency; ever heard that a dollar doesn’t buy what a dollar used to? This is inflation. Cars, clothes, fuel and homes were rapidly going up in price. Yes, contrary to common thinking, home pricing is affected by inflation and rising rates don’t necessarily halt rising home values. This is the back drop for my story…
Whether this is a true story or urban legend, I cannot say; I wasn’t there, but this was how it was told to me. The year was 1977 and Nathan Shapell was President and CEO of S & S Construction, one of Southern California’s most prominent home builders. Shapell built homes all across So Cal but nowhere like they did in Long Beach. Imagine back to when Long Beach was a bedroom community, not far from the aerospace capital of the world and home to one of America’s busiest ports. Shapell built thousands of homes in Long Beach in communities called Eldorado Park and Bixby Village. It was prime land whose ownership was traced back to the Spanish Land Grants.
It was a crisp fall morning, much like today, and Shapell and Company had been readying for a grand opening of new model homes. This was back in the day when old man Shapell still drove himself out to grand openings. Shapell ruled with an iron fist. As a Holocaust Survivor, Nathan Shapell was one tough son of a gun and if he wanted to do something, he did it and no one argued. Back in the sales office everyone is excited. They’d arrived early. The homes were cutting edge designs, yet still made with lathe and plaster, the only homes around being made that way. The office was to open at 10 am. At about 9:30, Mr. Shapell arrives and he can’t believe his eyes. Walking from his car to the sales office, he sees a line of people waiting to buy his new homes. He actually has to step over people camped out in sleeping bags. Inside, the staff is ready. The smell of coffee is the air; the topo (topographical) table shows where the first phase will be built; the brochures were out and so was the price sheet. A new young vendor named Bill had been in charge of all the displays and the renderings, it was his first grand opening and it was Bill, some 25 years later, who relayed to me this story. At this time the homes were set to be sold in the high $100,000’s up to $199,900. The market research had been done and the buyers had been told of the upcoming pricing. But no one had been prepared for a line of camped out buyers, least of all Nathan Shapell. As Mr. Shapell entered the sales office he smiled and then said, in his thick Polish accent, “Vatch Dis.” He took out a red marker, grabbed the price sheet, drew a line through the prices and then wrote new prices… $50,000 higher! With a stroke of his pen, Mr. Shapell raised the price of his homes by 25%. They sold out the 20 homes they released that morning and Shapell made an extra Million bucks.
You might be asking yourself about now, how is it that was possible? This is why I tell you this story. Shapell recognized that morning that there were more buyers than there were houses available. The demand exceeded the supply and if people wanted to buy a home from him that morning, they were going to have to pay more money. Now fast forward to this crisp fall morning 2012. As we look at the available inventory, there simply are not enough homes to meet the demand of today’s home buyers. Whether this is because banks aren’t releasing their foreclosed homes or people are under water and can’t sell, or are under equitized if that’s a word, or maybe because they just think by waiting prices will go up, is unclear. What is clear to me is that prices are going to rise because the demand exceeds the supply and this is the most basic tenet of economics. I do not anticipate a 25% rise overnight. I do however believe that the time to buy is now, and so is the time to sell. Why? I think we can all agree that it is better to sell low and buy low than it is to sell high and buy high. So as we look back this week and recall the 25th anniversary of Black Monday, let us also reflect on the history of housing. Because for right or for wrong, history is prone to repeat itself and I don’t see any reason that this shall not continue.