The 1930s – New Challenges and a New Deal
September 6, 2022
In July 1932, Mobile’s Battle House Hotel drew REALTORS® from across the state paying $5 each to attend the Alabama Association of REALTORS® annual convention. In the throes of the Great Depression, it likely was considered an expensive ticket but the industry needed its leaders to participate in finding a solution to a key element of the nation’s economic crisis – home building and financing.
In 1932, a staggering 273,000 people lost their homes. A year later, nearly a thousand were foreclosed every day. Housing values dropped by approximately 35 percent. A house, worth $6,000 before the Depression, was worth approximately $3,900 in 1932. Between 1929 and 1933, construction of residential property fell 95 percent. It was, indeed, a tough time to be in real estate.
According to encylopedia.com, the Great Depression presented two challenges for the real estate market: new home construction had ground to a halt, and foreclosures were rampant. By 1933, nearly half of all U.S. home mortgages were in default and the home financing system was nearing collapsed. Many believed defaults and foreclosures were major contributors to the country’s banking crisis and that restoring construction activity would stimulate economic recovery.
In 1931, President Herbert Hoover convened the National Conference on Home Building and Home Ownership to address the emergency in the construction industry and the rising number of home foreclosures. During Hoover’s term and during President Franklin Roosevelt’s first term, Congress passed three bills aimed at providing relief to homeowners and banks in order to restart home construction. The Home Loan Bank Act of 1932 was designed to encourage home ownership by providing a source of low-cost funds for member banks to use in extending mortgage loans. As part of Roosevelt’s New Deal, the Home Owners' Loan Corporation (HOLC) and the Federal Housing Authority (FHA) were created. The HOLC began as an emergency agency to stop the avalanche of homeowner defaults by refinancing shaky mortgages.
The new housing finance measures not only sparked energy in home building, finance and real estate, they left a legacy of attainable long-term, low-interest mortgages insured by the federal government, uniform appraisal methods and home construction standards. The final New Deal creation, the Federal National Mortgage Association, or Fannie Mae, bought mortgages from lenders which increased lenders’ ability to fund more mortgages and construction loans. These new approaches to home financing stimulated construction and provided a framework for the 1940’s housing boom.
Alabama, still a largely rural state in the 1930s, needed help for tenant farmers and sharecroppers. The Great Depression had forced many to leave their farms for jobs in cities. A 1935 New Deal program aimed at resettling farmers was one solution. An al.com article details eight rural Alabama towns created by the Subsistence Homestead Program designed to relocate farmers and laborers who were barely subsisting. The towns – complete with a store, community center and school – were funded through the government program and built by unemployed workers. Selected applicants could move their families into the towns and rent or purchase homes and farms with affordable government loans. The law that created the program was the work of Alabama Senator John Bankhead. Two years later, he co-sponsored the Bankhead-Jones Farm Tenant Act that provided a federally backed long-term loan program to help farmers purchase land.
The 1930s was a decade of ups and downs but the downs were deep. By the end of the decade, recovery was in view but greater challenges loomed as the world faced another war.
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