Ten years ago this week, Lehman Brothers Holdings Inc., one of the world’s largest investment banks, sought protection from its creditors in U.S. Bankruptcy Court in Lower Manhattan, just four blocks from the New York Stock Exchange and Wall Street.
That moment is generally viewed as the shock that inflamed the worst financial crisis in the United States since the bank panics of the early 1900s and the Great Depression.
“The American financial system was shaken to its core,” the Wall Street Journal said the next day.
In the ensuing years, millions of people in the U.S. and other industrialized nations lost their homes and their jobs. Small business owners were ruined, higher education dreams were destroyed and the divide between rich and poor widened.
In Sonoma County the effects were profound. More than 15,000 homeowners who thought they had achieved the American dream instead lost their homes to foreclosure, and those properties were then snapped up by people with money at recession-level prices. Business owners, in a county recognized as one of the most entrepreneurial in the nation, lost years of hard work. Community bankers, proud of their role serving their depositors, borrowers, shareholders and local nonprofits, suddenly feared for their survival and watched powerlessly as the commerce they had championed melted away.
The Great Recession scarred Sonoma County in ways that are still painful a decade later. The loss of middle-income jobs, homeowners forced to be renters, rising debt for college and cars, ever- longer commutes, underfunded and terminated pensions, the high cost and scarcity of credit, even drug addiction are all lasting impacts of the financial crisis of 2008.
One of the most damaging outcomes of all, especially after the October wildfires, may be the housing that didn’t get built because developers couldn’t get financing and homebuyers couldn’t get home loans.
“It’s the most unreported story of the whole recession,” said Sonoma County developer Orrin Thiessen. “It was a huge thing.”
Had construction continued unabated, more than 10,400 additional homes would have been built in Sonoma County between 2008 and 2017, a Press Democrat analysis found.
Builders were adding an average of 1,583 single-family homes a year in Sonoma County in the six years from 2003 to 2008, between the dot-com bust and Lehman’s bankruptcy, according to the state Department of Finance, which collects housing data. But over the next three years, construction gradually ground to a halt as the financial meltdown upended the U.S. banking system. From 2011 to 2017, builders averaged only 283 homes annually, Department of Finance figures show.
As fire survivors prepare to mark the first anniversary of the October firestorm, which destroyed 5,300 homes in Sonoma County, some people are also taking note of the 10-year anniversary of a financial crisis that cost the region twice as much housing as the wildfires, bankrupted many local developers and left the county with a housing deficit it may never be able to repair.
The housing downturn 10 years ago actually unfolded in two phases: First came a real estate recession, essentially from 2005 to 2008, and then came the financial crisis.
The first phase: Housing
When Lehman filed bankruptcy on Sept. 15, 2008, the Sonoma County economy was already in a real estate downturn and it was hard to imagine things could get worse.
Housing construction plunges in Sonoma County
The 2008 recession triggered a sharp drop in construction of new homes. This chart shows the annual net increase (or decline) in the number of single-family homes in Sonoma County since 2001.
Source: California Department of Finance