by Tom Brokaw
In the fall of 2010, economists declared that the technical end to the Great Recession had come in July 2009, by their measurements, but that was little comfort to homeowners who had lost their homes or were struggling against the odds to hang on to property worth significantly less than what they paid for it. Banks and other lending institutions attempting to recover were also weighed down by permissive lending practices that became long-term obstacles to renewed financial health.
The fearsome reality of the depth and magnitude of the Great Recession began to catch America’s middle class in the crosshairs. For several years wages for that section of the population had been in decline in real terms, or stagnating, while the cost of housing, education, food, and health care rocketed up.
The middle class began to borrow more, on their credit cards, at the bank, or on their homes. Too many of them made no commensurate cutback in their appetite for what television commercials, lifestyle magazines, and their neighbors assured them was the good life: a houseful of expensive appliances, dining out, long weekends at Walt Disney World or Las Vegas, leased SUVs, and late-model cars for the teenagers.
The great hope of breaking even by selling a mortgaged home for much more than the initial investment disappeared overnight. Housing prices took a sharp turn downward at the peak of their inflated value, and as late as 2010 more than a quarter of homeowners in America were stuck with mortgages greater than the value of their house.
When the bubble burst, it set off a chain reaction that nearly led to a global depression.
As the economy struggled to recover going into the autumn of 2011, fueling an incendiary political debate, housing in America remained a primary problem.
The numbers were staggering: by the end of July 2011, banks owned but were unable to sell almost eight hundred thousand foreclosed homes and were in the process of foreclosing on another eight hundred thousand residential properties.
From the start of the recession in December 2007 through the summer of 2011, banks either foreclosed on or started foreclosure proceedings on approximately ten million homes, according to RealtyTrac, a national housing survey service.
THE PAST
A few years ago Meredith and I organized an informal reunion of South Dakota friends at our Montana ranch. We also invited a wealthy, politically and culturally prominent New York family. Only partly in jest I said to our New York friends, “This is a full-service group. One of the men is the chief federal judge in South Dakota. One of the women is a state supreme court justice; her husband is the former South Dakota attorney general. Two of the women are successful lawyers; the husband of one is now a college astronomy professor after retiring as one of the state’s most successful high school football coaches. There at the end of the table with the World Series ring is a longtime friend who played second base for those championship Oakland A’s teams in the seventies, and next to him is the proprietor of the busiest restaurant in our hometown.”
I closed by saying, “They have two things in common: They’re all successful and they all grew up in small towns, on farms, or on ranches in modest houses with one bathroom.”
The federal judge corrected me. “We didn’t have an indoor bathroom on the farm until I was a teenager.”
It was good for a laugh, and then we had a lively dinner discussion with no discernible differences between the New Yorkers and the South Dakotans when it came to familiarity or insights on the big issues of the day.
The evening was, in its own way, a metaphor for the contraction of class differences on many levels in America. It was also a reminder of the expensive expansion in home construction in the recent past, and the diminished expectations of the present and future.
The increasing size of the family home and the rising ownership of second homes seemed to have happened with little commentary or examination. There may not be a more telling example of the differences in spending habits than the housing model. In the 1950s and early ’60s, the Rocky Mountain ski areas were quaint villages; they erupted into glossy sprawls of trophy homes and condos. Florida coastlines and Arizona and California deserts blossomed with sun-dappled expensive weekend and winter housing. In every state, second homes morphed from rudimentary cabins on lakes and rivers to residences a huge percentage of the world’s population would consider palaces.
My father-in-law was a successful physician in our hometown of Yankton, a thriving rural medical center in South Dakota. He built for his family of five children what the community considered to be at the time an impressive brick home with four bedrooms, three bathrooms, a small den, a “rec room” in the basement, a comfortable living room, and a two-car garage with a station wagon in one bay and a late-model sedan in the other.
The square footage of the entire house was probably about twenty-five hundred. That was a substantial symbol of real prosperity in the fifties and early sixties. Today Yankton has whole neighborhoods of homes a third again as large. The nearby lakeshore is laced with second homes, equal in size to or larger than Doc Auld’s brick house on West Eighth Street.
The summer Meredith and I were married, 1962, the only second home on the lake I knew of belonged to the local banker. It was a small, modestly furnished cabin, but in its understated way it separated the banking family from the rest of us financially.
Dr. Auld and the banker had the means to build something much grander for their families, but modesty and proportion—not showing off—was an unspoken rule. When Doc bought two productive farms nearby, there was no resentment; that made sense. But if he had built what came to be called a McMansion, the community would have collectively wondered what had happened to the man they thought they knew.
The Brokaw family home during my teenage years was a two-story, three-bedroom house on a corner lot with an attached two-car garage that doubled as my father’s mechanical workshop. It was the first house my parents purchased after twenty years of marriage spent living in small mobile homes, rented apartments, and government housing on U.S. Army bases and Corps of Engineers construction sites along the Missouri River.
Even though I was just fifteen when they bought the turquoise-colored home at 1515 Mulberry in Yankton, I was impressed by the purchase price: $11,500. It seemed a princely sum, but Mother later told me they had saved so much during the postwar construction boom that they could have paid cash.
Although the rooms were small—the bedrooms were, maybe, eight by ten feet—and there was only one bathroom for a family of three boys and Mother and Dad, it had a solid working-class respectability about it.
It was, as our visiting relatives would say, “a nice house.”
When Meredith and I bought our first home in California in 1968, I was making around forty thousand dollars a year as a local anchor and network correspondent for the NBC-owned station in Los Angeles.
The house, a forty-year-old custom-built home in the hills above Studio City in the San Fernando Valley, had three bedrooms and one bath at one end with a spare bedroom and another bath at the far end. In between there was a modern but not fancy kitchen, a sunny dining area, a small television room, and a living room with hand-hewn beams in the ceiling and a fireplace in the corner. It was in the fourteen-hundred-square-feet range.
I took time off from work to refinish a secondhand crib for our third child, steam old wallpaper off a bedroom wall, and paint a bathroom while Meredith spent a thousand dollars on handsome matching sofas and an expansive glass coffee table to place in front of the large picture window overlooking the valley.
Our small yard on a steeply pitched lot contained flourishing peach and lemon trees and an ivy-covered terrace. A stand of eucalyptus trees out back bordered a three-hundred-acre piece of county land off-limits to development. In that county tract there were deer, coyotes, hiking trails, and trees to climb.
We were surrounded by houses with pools in our woodsy cul-de-sac, and most of the neighbors were generous with invitations.
In short, for a pair of twenty-eight-year-olds
from the prairie just starting a family, it was California bliss. Not for a moment did we feel house poor. For the next five years we entertained neighbors and friends, movie and television stars, presidential candidates, local politicians, famous athletes, and business moguls at casual Saturday and Sunday night dinners.
The house cost $42,500, just slightly more than my annual salary.
I occasionally drive up the narrow street on which it sat when I return to Los Angeles. I can no longer see our little nest from the street because someone has converted it into a gated mansion with an elaborate steel and concrete deck over what was once the ivy-covered terrace. I have no idea what the current value might be, but it must be at least two or three million dollars.
The reconstruction looks very expensive, but it appears to have turned out well. I hope the happiness we left behind wasn’t lost in the conversion.
A good contrast between the standards of yesterday and today in the house-buying business is Graceland, Elvis Presley’s celebrated estate on the outskirts of Memphis. It is one of the most popular tourist attractions in the Southeast and for members of my generation, it has a Shangri-La-like reputation.
Elvis, our poor-boy rockabilly icon, could rise up from his Mississippi shanty roots and buy a grand home. He purchased it in 1957, when just about everything Elvis did was breathlessly reported, and this was well before Entertainment Tonight or any of the other cable entertainment shows.
Graceland became more mythical once Elvis died. Paul Simon recorded a monster hit about going there, called “Graceland,” which appears on the album of the same name.
So when I finally made my own pilgrimage a few years ago I half expected the grounds to have a kind of celestial feel and the home itself to be more castle than house. It is, it turns out, a period piece, stately but more modest in scale and statement than any number of homes on any number of streets in the moneyed neighborhoods of, say, Atlanta, Houston, Minneapolis, Seattle, or Boston. Graceland is a little more than ten thousand square feet over all, and yet Meredith and I were surprised to discover the living and dining rooms were about the size of those you’d find in large modern homes so popular with the upper middle class today.
At the time he bought it, Elvis was a huge star, the biggest recording artist on the planet, well on his way to becoming the legend that lives on. He bought Graceland for $102,500, and that included almost fourteen acres of land.
The terms? The king paid $10,000 down in cash, plus another $55,000 he received from the sale of the house his parents were living in. He took out a $35,700 mortgage for the balance, payable over twenty-five years.
This kind of proportionate house pricing went on for another twenty years.
THE PRESENT
When it came time for our three children to find homes, they were at the wrong end of the great American real estate boom and living in two of the priciest cities in the country, New York and San Francisco. With our help, they each bought comfortable but not luxurious homes for prices that were, as I liked to remind them (not entirely in jest), what I once had hoped to earn in a lifetime of labor.
The big jump in housing prices has not been confined to big cities. Nationally, the median price of a new single-family home went from just over $160,000 in 1999 to $248,000 in 2007, a jump of more than 50 percent. The sale prices of existing homes went up close to 60 percent during that period.
It was a booming bubble until it wasn’t, and then the landscape was littered with foreclosures, abandoned homes, unfinished developments, and failed lending institutions.
Owning a home and paying the mortgage that comes with it went from being the American Dream to worse than a nightmare for many families. Nightmares go away, but the consequences of owning a home worth less than you paid for it—foreclosure and credit difficulties—linger for a long while.
Our youngest daughter, Sarah, is not married and has no children, so the housing and economic strain on her is not as great, for now. But she’s watched her sisters, and she knows the financial pressures that come with a family these days. As our San Francisco daughter, Jennifer, laments from time to time, she and her husband are both highly trained physicians in thriving practices but their finances are constantly strained by the cost of housing and education for their children. They turned to the private school option only after their daughters, Claire and Meredith, didn’t win a place in the San Francisco public school lottery. They hope that San Francisco’s public education standards will not wither under the strain of the city’s and state’s fiscal pressures.
Our New York daughter, Andrea, her husband, Charles, and their two daughters have an identical dilemma with the cost of housing and education. He’s a Yale graduate with a law degree from the University of Chicago who has held senior positions in the Clinton administration Justice Department and the New York State Division of Criminal Justice Services. She has a senior management position at Warner Music.
They live in his old neighborhood, a collection of vintage apartments on the Upper West Side of New York. Not so long ago a couple with their résumés and earning power could have easily bought one of the apartments with their salaries. Now, as my daughter says, with a kind of morbid laugh, “Dad, I need to cash in before you check out.”
This is not what our daughters expected when they left home to study at good universities. They had grown up in comfortable circumstances but always with the reminder of their grandparents’ prudent lifestyle and constant admonitions from their parents that they were not trust-fund kids, inoculated against finding a working profession and pursuing it.
It is not that Meredith and I and our daughters are whining about all this. “Astonished” is a more apt description: astonished and concerned for those of their generation who aren’t able to fill the gaps between income and the fundamentals.
This is, or should be, a lesson for our time—for all of us—whatever our financial status. Shannon Oliver and her family were typical of what was going on.
I met them while crossing the country on U.S. Highway 50, reporting on the American character for USA, the cable channel. The Olivers personified the distressed population in Fernley, Nevada, a shake and bake suburb of Reno with rows of houses in new developments with names such as Ponderosa, Green Valley Estates, Autumn Glen, and Rawhide. If it was not the foreclosure capital of America, it was a contender.
Shannon was fighting to save their home, a modest modular house they had purchased in 2005 for $187,000, at a time when her construction worker husband Troy was making close to a hundred thousand a year in the building boom of northern Nevada.
They had moved from California to Nevada to find the good life and, as Shannon put it, “get the American Dream—our own home.” But they wanted more, and why not? Didn’t everyone they saw on their street or on television have more? So they bought two new cars as well. Shannon’s eyes sparkle as she says, “I loved my little Jeep Liberty.”
Making ends meet was a stretch but when Troy came home with extra pay from working overtime, it was reason enough to splurge on dinner and a movie out. Saving the overtime pay didn’t occur to the Olivers.
Then it all came apart. The building boom went bust and Troy lost his job, and then another. Shannon drove a school bus but her salary was not nearly enough to keep up with their obligations. The cars were repossessed. The value of their home went into free fall, dropping to $60,000, in a neighborhood of foreclosures and desertions by others in similar straits. The Olivers’ home was a modular unit, and today it is hard to imagine it ever had the real value of the original purchase price.
When we met in the fall of 2009, the Olivers’ every waking moment was consumed by trying to find a way to save their home and what little was left of their dream. Shannon was reading everything she could find about government mortgage help programs and talking to her bank contacts, explaining that they could pay $950 on their mortgage but not the $1,500 called for in the contract.
Nothing worked. They simply had far too much d
ebt and were eventually forced to declare personal bankruptcy. Even if they had been able to make a deal with the bank, their burden would not have been eased. A year later, a matching modular home in the same neighborhood was on the market for $49,000. By November 2010, Fernley, a community of just under 13,000 residents, had 530 homes in foreclosure, and prices continued to drop.
Still, Shannon, ever the optimist, saw a bright side. “We’re spending more time together as a family,” she said. Entertainment now is watching their son, Jayce, play football, or renting DVDs for a dollar a night.
“We’ve learned a very hard lesson,” Shannon said. “We as a nation were living much too hard, much too big. We have to get back to basics.”
Jayce often asks why they can’t have the things they did before and Shannon has been patient in explaining the realities of their new economic condition. He’s a serious nine-year-old and there’s been little whining. When Jayce gets to his parents’ age, how will he manage his finances after this searing experience of his childhood?
Shannon and Troy Oliver in the home they lost (Photo Credit 8.1)
Perhaps he will be more mindful of saving before spending. There is no doubt he is getting an up-close look at the importance of education in developing job skills that improve your chances of working even when a recession comes along.
THE PROMISE
Marketing and retail research organizations are doing extensive work with young consumers to determine their current and future buying habits. One company, GTR Consulting, has already come up with a new name for them: neo-frugalists. The Food Institute commissioned a study on teenage eating habits during the recent economic difficulties and discovered there was a 20 percent drop in dining out for the younger set between the fall of 2007 and 2009.
A friend of mine, Doug Tompkins, had a turnaround moment in his life. With his former wife, Susie, he founded Esprit, the hip clothing company of the eighties and nineties. They became wealthy and bought a stunning home just off Lombard Street in San Francisco, which they filled with masterpieces from the Colombian artist Fernando Botero.
