Bigger goldfish bowlFor years, my kids had an aquarium. They loved watching all those fish happily swim around the huge tank. Twice a month we would put all the fish into a small tank and clean the big one. One time we moved all the fish into the smaller tank and left them there for about two weeks. Big mistake! About a third of the fish died and the rest didn’t look too healthy. The remaining fish recovered when we put them back in the big tank.

Most cabinet dealers I’ve spoken with can relate to our fish. They felt like they were happy little fish swimming around in a huge tank and now mysteriously find themselves in a small tank with way too many other fish fighting to survive.

One the most common questions I am asked from dealers about their market is this:

“How do I figure out what the size of my market will look like when it’s all over?” Or in other words, “How big will my NEW fish tank be?”

The Perfect Storm

Looking back, it’s interesting that most people never saw this coming. By 2001 the stock market had gotten rocky and many people didn’t have confidence in a stock market investment. The things that followed created the “Perfect Storm” for an unprecedented housing bubble.


There was an inherent belief by so many people that Real Estate was one of the best and safest investments, especially after the dot-com crash. Many people took their money out of stocks and put it in Real Estate. There began a “home ownership mania” that proliferated throughout the country and the media fed the frenzy with all of the publicity about it. All of this set the stage for the demand for housing to increase.

The Fed Monetary Policy

The Fed helped inflate the bubble by keeping interest rates at some of the lowest rates in its history. Alan Greenspan admitted that the housing bubble was “fundamentally engendered by the decline in real long-term interest rates.”

Risky Mortgage Products

Many mortgage products were made available to people that could not really afford them, such as sub-prime mortgages, ARM’s, Interest Only loans, and “Stated Income” loans (where the borrower is not required to provide documentation of income, also called “No Doc” loans).

Criminal Activity

In this environment, many companies took advantage to the extreme and participated in what should be called criminal activity:

  • Unjustifiable, Inflated appraisals
  • Use of non-profits to funnel money to cover down payments


  • Lax Mortgage Standards
    • Each link in chain collected profit while passing on risk
    • Denial rates dropped from 29% in 1998 to 14% in 2002-2003

Fanny & Freddy Fueling Bad Mortgage Market

The Department of HUD pushed these 2 companies to classify subprime loans as a “public good that would foster affordable housing”. At the foundation was the ideal that everyone deserves a home, and these 2 companies and government agencies acted as if that was their charter:

  • Purchased $434B in securities backed by subprime loans in 2004-2006
  • Financed about 40% of all U.S. mortgages, with $5.3 trillion in outstanding debt
  • Subsidized by government ($6.5B / yr) to help make home buying more affordable
  • HUD gave them “affordable housing credit” for buying subprime securities

Artificial Surge in Home Values and Sales

All of these ingredients in this “Perfect Storm” created a bubble in the market, causing home values to artificially increase and sales to skyrocket.

The Answer

So what will your market will look like when it’s all over? There are so many discussions and analysts trying to answer this question. However, it doesn’t take a lot of analysis to get a good answer.

When we’re “out of the recession”, you should expect your market to settle in to what it was before all of the above variables artificially inflated the entire housing market. In short, look at where your market was in 2001 before 9/11. Look at your local building rates, permit numbers, and remodeling numbers for that time period. This is the simplest indicator of what you can expect in the future.

To make goals and plans, build them around this model, considering what competition you have now and how much your market will sustain. Put a plan together on how much of that market you can logically get for yourself over the next 24 to 36 months. Then start building process and infrastructure for it.

This is the “new baseline”. Getting back to market reality, then watching it grow from there based on REAL market drivers that determine REAL values, instead of the gimmicks which were thrown at the market to make it artificially increase.

But, let’s be realistic…the mortgage industry and the government are not done with the gimmicks that tend to artificially inflate. We’re just more aware of them now.


Below are some of the driving graphs to help pinpoint the new baseline. Dig up the historical numbers from your local permits, home sales, home values and starts. Then look at the corresponding period shown here and determine your share of the fish tank when it gets back to this level.


S&P graph