MERCED, Calif.
Ellie Wooten, the mayor of Merced, Calif., and a real estate agent, at a foreclosed home that she herself had listed. More Photos »
ELLIE WOOTEN, the likable mayor of this likable Central Valley city, is on her way to the office when her cellphone rings. A constituent wants her mortgage payments reduced, and is hoping that the mayor has some clout with her lender.
Although Merced has one of the highest foreclosure rates in the country, this borrower isn’t in such dire straits. She’s not even behind on her mortgage. But her oldest daughter is turning 18, which means an end to $500 a month in child support. She just wants a better deal.
The mayor hangs up and shrugs: “It’s a surprise her daughter is turning 18? You’d think she could have planned ahead.”
But hardly anyone in Merced planned very far ahead.
Not the city, which enthusiastically approved the creation of dozens of new neighborhoods without pausing to wonder if it could absorb the growth.
Certainly not the developers. They built 4,397 new homes in those neighborhoods, some costing half a million dollars, without asking who in a city of only 80,000 could afford to buy them all.
Obviously not the speculators turned landlords, who thought that they could get San Francisco rents in a working-class agricultural city ranked by the American Lung Association as having some of the worst air in the nation.
And, sadly, not the local folk who moved up and took on more debt than they could afford. They believed — because who was telling them differently? — that the good times would be endless.
“Owning a home is the American dream,” says Jamie Schrole, a Merced real estate agent. “Everybody was just trying to live out their dream.”
The belief that this dream could be achieved with no risk, no worry and no money down was at the center of the American romance with real estate in the early years of this decade, and not just in Merced.
How long will the economy have to pay the price for that illusion? 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. The only group for whom selling makes sense, real estate agents here say, are the elderly entering assisted-living facilities, who often have decades of appreciation built into their home’s value.
As Merced goes, so might go much of the nation. With as many as 2.5 million homes in the United States entering foreclosure this year and, at best, sales of only five million existing houses, the foreclosure price is becoming the rule in many areas. In Los Angeles County, whose 10 million people make it the most populous county in the United States, a third of the sales are foreclosures.
Local markets will not truly begin to recover until their foreclosures are absorbed, but just as few in Merced saw reasons for caution at the height of the boom, hardly anyone is optimistic now. Bank repossessions are accelerating as overleveraged owners see the value of their properties sink. Merced County had a record 523 foreclosures in July, quadruple the rate of a year earlier, according to DataQuick.
The repossessions are accelerating as overleveraged owners see the value of their properties sink and can find no way out.
Beverly Red, the woman who called the mayor to get a better deal, says she started w
orking months ago to renegotiate her loan into something she could better afford on her receptionist’s salary. No one takes her seriously, she says, because she is not behind on her payments, which, of course, is exactly what she is trying to avoid.
