The housing market is still bloodied and dazed after the free fall of the past few years.
Median prices in the Northern San Joaquin Valley finally leveled off in recent months after hitting the bottom with a thud, plunging by two-thirds from 2006 to 2009.
Out of that dizzying downward spiral came something positive. The low prices it created provide an opportunity, perhaps of a lifetime, for purchases by first-time buyers, families of modest means and those hoping to get back into a home after losing it all.
Investors also are jumping into the market in a big way, prompting multiple bids and all-cash offers. In their search for rental properties and homes to eventually flip, they are snapping up houses for pennies on the dollar while taking advantage of others' disadvantage -- a flood of foreclosures.
But uncertainties remain for many:
Homeowners stuck with high mortgages continue to face foreclosure.
Job losses could continue to mount, notably in education and local government.
The home-building industry, once a major employer, has shrunk drastically.
"There's still this black cloud that's hanging over this region, which makes me a little nervous about what's coming down the pike," said Shawn Kantor, an economics professor at the University of California at Merced.
Experts say the outlook eventually will improve as the economy grows -- and if homeowners can accept slow but steady appreciation rather than a bubble that can so disastrously burst.
"If people think we're going to return to 2005 prices in 10 years, they're going to be disappointed," said Modesto home builder Mark Wilbur.
What happened over the past decade is nothing short of stunning, as shown by median price figures from MDA DataQuick, a real estate tracking firm:
Stanislaus County's median hit $396,000 in late 2005, compared with $122,000 in 1999. In February of this year, it stood at $140,000. (The median is the point where half the homes sold for more, half for less.)
The boom was driven in part by population growth, including Bay Area commuters seeking affordable homes. It happened also because lenders offered plenty of money to buyers who, in many cases, could not afford the monthly payments, Kantor said.
The crash battered the valley economy, forcing many construction companies, mortgage lenders and related businesses to close or trim jobs. The shock wave from those lost jobs and lost incomes rippled across other sectors of the economy, from retail to restaurants.
Subprime and other questionable mortgages added fuel to the widening financial crisis of 2008, when some of Wall Street's biggest players realized that bundling all those suspect loans into investments wasn't so smart.
About 54,000 of the region's homes were lost to foreclosure from September 2006 through last year, according to ForeclosureRadar.com. That's a seventh of all the homes in the region.
All this means bargains for people looking for homes for their families, or investors. They benefit as well from low interest rates, and in some cases from new income tax credits.
Dennis and Katie Coyle expect to close escrow at month's end on a $140,000 house in southwest Ceres. The seller still owed $316,000 and unloaded it through a short sale, where the mortgage holder accepts a price that's lower than what's owed just to get the property off its books.
The young couple found the market crowded with people looking for homes in their price range, making offers on 15 properties before finally succeeding.
"I thought it would be a lot easier, as bad as the market is," Dennis Coyle said.
They will pay $996 a month for the four-bedroom, 1,525-square-foot house -- only $90 more than they pay to rent a smaller, older home.
"It feels good now," Coyle said. "We finally got one. And we did start looking when they were a lot higher, so the wait was worth it."
Real estate agent Daniel Del Real of PMZ Real Estate, who worked with the Coyles, says patience is the key for anyone who's looking to buy a home in this market.
The inventory of existing homes is in short supply, he said, because lenders are trying to work out payment schedules that allow distressed owners to avoid foreclosure.
'Shadow inventory' threat
If they can't help enough of these homeowners, another round of foreclosures could hit. If that "shadow inventory" is unleashed on the market, Del Real expects sales to pick up.
Although prices have risen a little this year, he does not foresee much more improvement over the next couple of years. "We might hit the bottom that we hit six months ago again," he said.
But Craig Lewis, president of Modesto-based Prudential California Realty, thinks the market has stabilized. He said he expects an 8 percent annual rise in prices over the next three years.
Lewis sees positives in the low interest rates and the recent increase in household savings after people cut spending during the recession. "I think it gives a lot of economists hope that there is a recovery," he said.
Already, Lewis said, well-kept homes up to $250,000 are getting multiple offers.
He said local government officials should reduce building fees to encourage the construction of homes that will be needed in the years ahead as the inventory of homes steadily shrinks. Such a move would create jobs for carpenters and other workers, he said.
Wilbur, owner of McRoy-Wilbur Communities, said he expects a slow recovery in the construction business, which has a hard time getting loans these days.
"Last year we built 40 homes," he said. "In 2005 we built 200."
John Nelson, branch manager for Nor-Cal Lending in Oakdale, agreed that the resale market will dominate in the near future.
"Right now, the builders can't compete with foreclosed homes," he said.
Some of the mortgage applications are starting to come from the very people who lost their homes to foreclosure, he said. They have repaired their finances and completed the waiting period required by federal programs that back loans.
"They are going to come in smarter, they are going to do 30-year fixed rates like they should have, and they are going to own a home," Nelson predicted.
The overall market would be best served by a low appreciation rate, avoiding the swings of recent years, he said: "If the real estate market goes up by more than 3 to 5 percent, we're moving too fast."
Nelson added that the reduced home prices in the Bay Area will keep many workers from seeking homes in the Northern San Joaquin Valley, and if they do, they will favor relatively closer cities such as Tracy and Manteca.
Larry Rosenthal, a housing expert at UC Berkeley, said job losses in the Bay Area have reduced demand for valley homes.
He said the valley should make as much use as it can of the federal stimulus money aimed at preserving neighborhoods and preventing homelessness.
Rosenthal, executive director of the Berkeley Program on Housing and Urban Policy, also urges financial reforms to prevent housing bubbles.
"We need to talk about why values rose to such unimaginable and unsustainable levels," he said.
The downturn hurt not just recent home buyers, but most of the people who have owned during the past decade. They saw a sharp rise and fall in the value of these investments -- a value that they can borrow against and eventually pass on to their heirs.
As of June, more than 80 percent of the region's mortgaged homes were worth less than the owners owed on them, according to University of Arizona law Professor Brent White. The national average was 32 percent.
No quick rebound
Those values will rise again, but slowly in the parts of the United States hit hard by the recession, according to a report last month from First American CoreLogic, a real estate research company.
The nation on average will return to positive equity by early 2016, but it could take another decade in depressed markets such as Detroit, the report said. It did not have specifics on the valley.
Experts in the region urge its residents to trust in the long view and to see the 2005 peak as an anomaly. And they say now is as good a time as ever to buy, as long as people can get a manageable mortgage.
"Thirty years from now, you're going to be happy because you've paid it off," Del Real said. "It's your shelter. It's your home."
Bee staff writer John Holland can be reached at firstname.lastname@example.org or 578-2385.