There was another glaring flaw built into Merced’s real estate equation that no one seemed to ask about. Who in this town could possibly afford these McMansions? At the peak of the market it took an income of $120,000 to buy a home in Merced, according to the Center for Housing Policy. Yet, Merced has always had a problem with high unemployment. The median income is barely $35,000 a year. That suggests the majority of people who were buying then were out-of-town speculators or locals who had no hope of actually repaying their mortgages.
A few blocks up the road from where Schwarzenegger held his press conference, Michelle Allison, program manager at the county employment office, spreads half a dozen menial job postings out on a table in front of her—much of what’s on offer at the moment. An increasing number of the people coming in for help are flight attendants, teachers and business owners. Yet the going rate for the few jobs available is just US$8 an hour. “It’s frustrating because we’re getting them all trained and ready to work, but for what?” she says. “There’s nothing out there.”
Anthony Jones, an army veteran who’d worked steadily for two decades, has hit a wall. It’s been a year since he lost his $31,000-a-year job at a struggling grocery chain, and in that time he’s applied to dozens of employers, with no success. “I feel like I’m starting all over again at 50,” he says. He remains optimistic that the government’s stimulus programs will jump-start the local economy. But the fact is, it could take months for that to take effect, leaving few options for those who can’t find work in the meantime.
Allison herself is all too aware of that. Her job ends next month. “I’m looking for work outside of California,” she says.
Michael Blower never quite knows what to expect when he enters a foreclosed home in Stockton. The real estate agent is often the first person into a house after the bank has seized it. In one home he found an abandoned antique piano. In another house all the walls had been kicked in, possibly by vandals but more likely by the previous owners before they left. And when he opened a dishwasher recently, it was crawling with cockroaches and rats. So when he walks into a two-storey house on the edge of Stockton and sees shattered glass everywhere, he’s not particularly surprised. A football-sized rock sits in the middle of the kitchen floor. Blower will have to call a contractor to replace the glass, but he knows it will probably just get smashed again. “We’ve got at least another couple of years of this,” he says.
The title of Foreclosure Capital of America tends to shift with each month of new data, but Stockton is almost always in one of the top five spots. Starting in 2003, people began to flee rising house prices in the Bay Area for bedroom communities like Stockton, but that only served to drive up property values here, too. As buyers got squeezed out of the market, banks peddled more and more subprime loans to entice them back in. At the height of the bubble, when the average house price reached $358,000, the vast majority of home sales in the city were bought with subprime mortgages. This explains why homeowners here have been hit so hard by the wave of foreclosures. Stockton house prices have plunged by about 62 per cent to an average of just $137,000. This has left whole neighbourhoods “underwater”—meaning homeowners owe more than their houses are worth. According to Zillow, a market research firm, an estimated 96 per cent of all homes in Stockton bought in 2006 are underwater.
As a result of all this, Stockton’s real estate market has a zoo-like quality to it. It was here, after all, that the phenomenon of the foreclosure tour first emerged. On weekdays, minibuses prowl the streets, shuttling buyers from foreclosed property to foreclosed property. The world of real estate reality TV, which whipped buyers into a frenzy during the bubble, has tuned in to the trend. When a new show called Deals on the Bus was launched in January, naturally Stockton was the first stop. Prettying up neighbourhoods so they look enticing to passersby has become an industry unto itself. Nothing screams empty home like a sunburned front lawn, so landscapers spray dead lawns with green biodegradable paint to give properties that lived-in look.
Watching all this from their rental house are Daniel and Dorothy Martin. He’s 91. She’s 77. But their age didn’t help them avoid being evicted from their home in February. If anything, it made matters worse.
Dorothy is deeply religious. Before sitting down for an interview, she first requests that everyone join hands while she leads a prayer, asking that peoples’ eyes be opened to the troubles so many homeowners are facing. But she quickly admits to having less than charitable thoughts toward the mortgage brokers who forced her out of her home. “I’m a Christian woman, but I felt like breaking the windows and splattering the walls with paint before we left,” she says. “I kept asking ‘Why us?’ We didn’t do anything. Why should we be thrown out on the street?”
Over the years the Martins have owned seven homes from Ohio to California. When they moved to Stockton four years ago to be close to their grandchildren, they bought a home with an $85,000 down payment. Both of them are retired, but their fixed income of $3,700 a month more than covered the $1,600 monthly payments. Then last year the Martins were notified that their payments, like those of so many other Americans who took out adjustable-rate mortgages, were about to skyrocket and would gobble up almost their entire income. They tried to renegotiate, but were told that until they defaulted, the bank couldn’t help. When they did stop making payments, they learned that the bank they’d been speaking with no longer owned their mortgage. (Their daughter, Gail Sullivan, later learned the Martins’ mortgage had been sold and resold five times.) In February, the Martins received a “notice to quit.” The sheriff’s office posted it to their front door. But by then they’d already moved out. “We left a lot of love in that house,” she says.
Despite all that’s happened, Dorothy remains hopeful everything will work out for them. She’s also thankful the couple have a roof over their heads and food on the table, unlike so many others. A quick visit to the Stockton food bank shows the extent of the problem. A long line of people coils up to the door. According to Kristine Gibson, a manager at the food bank, demand is up 25 per cent over last year, and rising. She says the people coming in today for food baskets include a lot more middle-class families. She can tell by their nicer cars.
Pingback: On the front lines of the U.S. meltdown