Back to the future…

Back on September 16, 2008, I opined that what we were in the midst of was a fundamental reset of our way of life in America. I ventured that our home values and stock portfolio values were resetting; and our expectations about jobs and job security were resetting. Even our expectations about the future of our children was in the process of a rest; which, in a later blog post, I indicated they were adapting to better than most of us in the Boomer and older generations.

Yesterday, in my weekly Iconoculture newsletter – the Iconowatch - the story below, by Josh Kimball , Executive Editor, headlined the newsletter. It’s sort of déjà vu all over again.

THE REVALUATION REVOLUTION

At Iconoculture, we tackle the issues shaping the culture. In 2008, for our inaugural Cultural Zeitgeist series, we looked at some biggies: the finitude of the earth's resources ("A Finite Future"), the changing station of America in the realms of geopolitics and global commerce ("The Centerless World"), and the dynamics of fear as a consumer motivator ("The Fear Economy"), along with several other topics. This year, my colleagues Derek Stubbs and Hans Eisenbeis led an Iconoculture team that looked into the foremost shift changing our world right now. And if you're eagerly awaiting the big reveal, you're living with the ostriches.

For more than a year, Iconoculture has been covering seismic shifts taking place the world over. For months, little else has rippled the mainstream news. Home prices have fallen, unemployment has risen, America is busting out bailouts, and the acronym FUBAR pretty much sums up the whole thing.

In "Consumer Reset: From Recession to Revaluation," our Cultural Zeitgeist team examines how the financial crisis — and the conversation and attitudes that have since sprung up around it — will shape the culture for years to come. From the consumer to the community to the corporation, Americans and America’s institutions have quickly scaled back their expectations. We've changed what we expect to receive from our work and our investments, and even what we can expect from our future. What to make of this time of chaos? In short: Let's revaluate.

You can see all of Iconoculture’s products and services at http://www.iconoculturre.com/

Of course, being a Realtor, I look at things from the perspective of how this will affect my business and me. It certainly has impacted my business already, with most buyers looking for cheap houses (primarily foreclosures) or to lease something while they rebuild their credit. All of my listings right now are regular owner-occupied homes, for which the market has stretched out remarkably. From an earnings perspective that has meant prolonged sales cycles and severely decreased paychecks – kind of a double whammy.

I’m already seeing articles that support the opinion that I had last year that builders would need to start building smaller, more affordable homes, in order toe reenter the housing market, following this reset. One builder in Texas is now building so-called tiny homes – those in the 700-900 Sq Ft range, because that’s what’s selling as an alternative to renting an apartment.

When I made my post last September I stated that I didn’t know where we’d land when the dust has all settled. I knew from personal experience that my open home had reset to its 1999 price and in a recent office meeting another agent told us that she had just listed a house that she last sold in 1999 to the current owners and she re-listed it for the same price as she had sold it to them. I’m not sure that we’re not on a path that is going to blow right past 1999 and end up with values being reset at the 1980s levels or even further back.

What haven’t come down as fast are the materials and labor costs to build or rebuild similar homes; so, we have homes that are valued well below their current replacement costs. I suppose that the cost to build will eventually slide down too, but we may have this upside-down scenario on existing homes for years. A similar thing happened in the automotive industry recently, when used cars of certain makes (usually luxury brands like Mercedes or BMW) were actually higher than the cost to buy a brand new car.

What this may portend is a scenario where we have a glut of fairly recently built McMansions on the market at prices that make them less attractive than owning a smaller new-build. Why? Several reasons. Owners who are upside down on the place and who can’t afford to (or won’t) take a loss on the place, so they keep the process high; or, buyers who would love to have the place but who can’t afford the taxes and upkeep bills that go with the larger houses.

Then there is the fundamental reset taking place in the Middle Class, which is having to get real about all of the things that seemed to be both in reach and affordable when credit was cheap and jobs were safe. No more garages full of toys – motorcycles, snowmobiles, jet skis and the like – and no more huge house in the gated subs for the guys who are now sweating out the next round of the government bailouts.

In prior Iconowatch newsletters they have documented the ability of the youngest set of adults – the group that they call the Millennials – there has already been a basic reset of values, with these folks expecting less and accepting life with less. The children of the Boomer, the Gen-Xers in Iconoculture-speak were still looking to buy the big house and have the toys, too. That’s now changing.

So the big reset is on America. Where we land is still anybody’s guess. It now “feels” to me like we are maybe in the process of shooting well under where we will end up. It’s sort of like the old artillery spotting exercise – fire one over, then fire one under then adjust to the middle and fire for effect. Where are you in that exercise in your area?