Boom to doom: The decade in housing (© C.J. Burton/Corbis)

It was the best of times, it was the worst of times … really. The last decade started with a bang and ended with a whimper as real estate boomed and busted more spectacularly than anyone had ever seen before, taking down not only the U.S. economy but fortunes around the globe. It was a decade that managed to change even the most basic belief about real estate.

“The prevailing assumption prior to 2008 was that you would certainly be able to sell your house for more than you paid for it,” says San Jose, Calif., real-estate attorney Harold Justman. With so many homes now upside-down in value, he says, “People understand that is no longer the case.”

It was also a period that brought about some of the biggest changes in the way real estate is bought and sold, arming homebuyers with more information and putting them in the driver’s seat when it comes to their largest purchase.

But perhaps what this decade will be remembered for most is its excess: lenders making far too many ill-conceived loans and then selling them off to investors inside and outside the United States, and consumers piling debt on top of debt — all resulting in a record-shattering tsunami of foreclosures that will affect some local housing markets for years to come. 

The Gordon Gekko character from Hollywood’s “Wall Street” may have coined the phrase “Greed is good” in 1987, but it was the real-life financial gluttony of the ’00 years that took that notion to a new level.

Here’s a somewhat subjective look back at some of the highs and lows of real estate in the past decade and the impact these events or milestones had on buyers, sellers and, in some cases, renters.

2000: The ‘democratization of credit’
The tech bubble still hasn’t burst. Corporate mergers are dominating headlines and George W. Bush narrowly defeats Al Gore in the presidential election.

And one man is quietly starting a consumer-credit revolution. E-Loan Chief Executive Chris Larsen is giving out free credit scores.

Previously, these three-digit scores — used to determine who will lend you money and at what rate — were top-secret. (You could find out why you were denied credit, but were not given the actual score.)

Four weeks later, E-Loan is blocked from giving out the scores by the three credit bureaus and Fair Isaac and Co., creator of the so-called FICO score.

Within months, Larsen successfully lobbies the California Assembly to require that consumers have access to their scores, and then testifies before Congress for their release nationwide. The credit bureaus and FICO cave later that year, and consumers can now find out – usually for a small fee – whether they are one late payment away from a better interest rate on a home loan, or if they have better credit than they realize. (Consumers can request a free copy of their credit report – but not their score – from annualcreditreport.com.)

“People needed to know how to manage their credit, just like their assets, and the basic building block was knowing your credit score and how to improve it,” said Holden Lewis, senior reporter with Bankrate.com.

This move toward transparency gave consumers more information and power in choosing a home loan.

2001: Terrorists attack. Wall Street suffers, but not the shingles on Main Street
Nearly 3,000 people are killed in the terrorist attacks on Sept. 11. America mourns and, as the year progresses, headlines about anthrax attacks dominate the news.

Airplane stocks sink, Wall Street tanks and the economy does, too, as giants such as Enron fall. Still, existing-home sales continue to rise — after a brief hiccup — and the median price jumps 6.3% from 2000.

“We had a recession in 2001,” says Steve Murray, a real-estate consultant and editor of Real Trends. “We had 9/11 and the housing market didn’t so much as bleep. It shrugged off these catastrophic events and kept on going.”

That kind of immunity from economic events was unusual, Murray says.

2002: Low rates, real estate the ‘safe’ investment
One reason for real estate’s contrarian rise is the notion at the time that in the face of such horrible news on Wall Street, property is a more secure place to park your money.

“When the stock market tanked, (people) thought maybe this is a safe place to be because homes always increase in value,” says Katie Schnidman Pelczar, senior economist with Boston-based Property and Portfolio Research.

A record number of first-time homebuyers enter the market as 30-year fixed mortgage rates, which had reached an average of 8.6% in May 2000, drop below 6% in September 2002. Home refinance booms.

The low rates, coupled with rising home values, encourage more existing homeowners to trade up to a larger home without a larger monthly payment.

2003: The year of the subprime loan
This year, lending to borrowers with risky credit is becoming a huge business. Subprime loans, which first emerged in the mid-1980s, are being extended to a lot more borrowers.

Even Countrywide Financial Corp., one of the nation’s top home-loan lenders, moves more solidly into subprime lending — a category it had largely ignored before — joining the ranks of so-called unconventional lenders such as IndyMac Bancorp, best known for making Alt-A or stated-income loans, which are soon dubbed “liars loans.”

Subprime mortgage originations soar from $132 billion in 2000 to $332 billion in 2003, according to the Inside B&C Lending newsletter.

More borrowers are also opting for so-called “option ARMs” (adjustable-rate mortgages), which let them choose the amount of interest they want to pay, tacking on the unpaid amount to the principal. Thirty-five percent of the loans made in 2004 carried adjustable rates, according to the Federal Housing Finance Board. Some estimate the percentage as high as 50% among first-time homebuyers.

Concerns about predatory lending mount, as many low- to middle-income consumers — often immigrants or the elderly — are saddled with high-cost loans.

Still, oversight is sparse. Some states, such as New Jersey, crack down on high-rate loans or exorbitant fees, but real reform is years away.

2004: Building fever, buying frenzy
By this time, there is more money than there are real-estate deals in the United States. Mortgage brokerages have sprouted everywhere, and many Americans are made to think they can afford a single-family home, even with no down payment to speak of.

“All of a sudden everyone could buy a home, and they were,” Schnidman Pelczar said.

The number of single-family home permits surges 41% between December 2000 and the end of 2004, as builders rush to build tract homes on the farthest fringes of cities and employment centers, allowing more people to “drive to qualify.”

With home values rising quickly and average rates on 30-year fixed mortgages dropping below 6% again in the second half of the year, people in many markets think they have to buy now, economists say, or they would be priced out in the years to come.

“Consumers were overstretching their budgets,” says Lawrence Yun, chief economist for the National Association of Realtors. And many were bypassing that starter home to get their dream home right off the bat, he says.

Some are cautioning that the Fed should move to raise rates and “take the punch bowl away” before the party gets too out of hand.

But mortgage rates continue to drop, and little- to no-money-down adjustable-rate mortgages and loans with teaser rates fuel speculative investment in hot markets such as Southern California, Las Vegas, South Florida and Phoenix.

“I had clients who bought three houses in Modesto with (ARMs), no money down,”  Justman says. “I remember thinking to myself that this can’t end right. People had completely abandoned any conservative approach to buying a home.”