(New York Times photo)
The real estate market in Orange County isn’t great, to be sure, but for a closer look at a place that is the poster child for the housing bust, check out this New York Times article on Merced.
Merced is a Central Valley agricultural town, approximately two hours’ drive from San Francisco. The prospect of a new UC campus there started a frenzy of real estate building, buying and speculation in the early 2000s.
The experience of Merced, which rose higher and fell faster than nearly anywhere else, suggests that recovery from the national real estate debacle will be painful and protracted.
In the three years since housing peaked here, the median sales price has fallen by 50 percent. There are thousands of foreclosures on the market. The asking prices on those properties are so low that competitive bidding, a hallmark of the boom, is back.
But almost no homeowner can afford to sell. If you cannot go as low as “the foreclosure price” — the cost of a comparable bank-owned house — real estate agents say you might as well not even bother listing your home.
And so most people do not: three out of four existing-home sales in Merced County are now foreclosures, the highest percentage in the state, according to DataQuick Information Systems.
Investors went crazy for Merced, hoping it would become another Davis, which grew like gangbusters when a UC campus was built there.
The University of California, Davis, however, has more than 30,000 students and is within easy reach of San Francisco and Sacramento. U.C. Merced, which opened in 2005, has fewer than 2,000 students and isn’t near much except Modesto. Instead of students or professors renting their houses, speculators say, they had welfare recipients or no one.
One family in the story abandoned its home and moved to an almost-new five-bedroom rental a couple of miles away, reducing its monthly housing obligation from $3,400 to $1,200.
Investors are also swooping in and buying properties for 50% less than what they sold for just a couple of years ago, like Mark Seivert, a local accountant:
Mr. Seivert is going after a house that the owners bought 13 years ago for $86,000 and refinanced six times, taking advantage of rising values to get cash that, in part, they spent on the house. It has a pool with a small waterfall, a TV room in the converted garage, a deluxe outdoor barbecue setup and a kitchen with all the latest gadgets.
The owners, who owe $350,000, can no longer make their mortgage payments. Mr. Seivert is negotiating to buy the house for $170,000 and then rent it back to the couple, who have jobs in the area. They will pay $1,100 instead of their current $2,600 a month.
“This could be a win-win,” the accountant says. “In four or five years, when their credit is better and the market has recovered, I’ll sell the house back to them.”
Here’s a key point:
The boom here allowed some people to become rich overnight and gave many more the idea that they could do it, too.
The latest boom was a lot like a pyramid scheme, where the people who get in the earliest make the most money. Those unfortunate enough to get in last, lose.
Orange County, with its proximity to job centers, isn’t anything like Merced, although its latecomer buyers are in the same predicament. The O.C., however, will come back, and come back strong. Merced, and other far-flung areas, won’t recover for many years, if ever.