Real estate roller coaster plunges after a thrilling ride

By J.N. SBRANTI
jsbranti@modbee.com

last updated: October 28, 2007 05:07:14 AM

Too many new houses. Too many investors. Too many exotic loans.

They created a lethal mix that caused the Northern San Joaquin Valley's housing market to soar, then crash into a painful collage of foreclosures, unsold homes and financial woes.

That's the consensus of experts who try to explain why home values and sales have fallen so far and so fast in Stanislaus, San Joaquin and Merced counties.

The rapid and sharp downturn contrasts dramatically with the real estate market's roaring good times a few years ago.

The region's homeowners were living large in 2005. Their houses had tripled in value in less than a decade. They could sell with ease for hefty profits or -- better yet -- borrow against their equity without hassle so they could buy cars, pay off credit cards or finance vacations.

They could qualify to buy big, new homes with no down payments and teaser-rate loans that made living in luxury affordable, at least for the first couple of years of the mortgage.

Easy-to-borrow money and get-rich-quick advice also persuaded record numbers of home buyers to try their luck at "flipping houses." They gambled that home prices would continue climbing long enough for them to cash out with big bucks.

Developers couldn't build houses fast enough. They sold more than 47,000 homes from 2001 to 2005 in cities throughout the three counties.

Hordes of new sales agents and mortgage brokers entered the industry, swelling the ranks of those with active real estate licenses to more than 11,500 in the region by 2006, nearly double the 2004 number.

And the booming housing in-dustry sprouted a plethora of businesses, from landscaping services to furniture stores.

My, how times have changed: 2007 will be remembered as a brutal time for real estate in the valley.

The three-county region has become America's foreclosure capital. Foreclosure auctions are held daily on county courthouse steps in Modesto, Stockton and Merced. Lenders have repos- sessed more than 5,400 homes in the past year.

Thousands of other homeowners are in mortgage default and at risk of losing their homes in the next six months.

Virtually every street in the region is sprinkled with "for sale" signs, many of which tout "price reduced." Homes often linger on the market month after month with no interested buyers.

In Modesto, about 2,400 houses and condos are for sale, nearly six times more than in spring 2005.

Because only about 50 Modesto homes have been selling per week this fall, sellers are finding it extremely difficult to attract buyers without significantly dropping their prices.

Developers have sliced new home prices repeatedly, often by $100,000 or more, to unload their finished-but-empty inventory. Only 88 new homes sold in August in Stanislaus County, compared with more than 350 in August 2005.

Several of the region's builders have slashed staff and are in financial straits. Others have put construction on hold, keeping subdivision lots vacant. And many proposed developments have been shelved indefinitely.

Home auctions are becoming commonplace as banks and builders try to move bargain- priced foreclosed properties and new homes that haven't sold through traditional means.

The foreclosures, auctions and abundant supply, combined with higher interest rates and stricter lending standards, have made buyers a rare commodity. And many of those who can afford to buy keep waiting for better deals.

Dead lawns, boarded windows and stagnant swimming pools mark the abandoned houses in neighborhood after neighborhood.

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