Tuesday, May 01, 2007

Central Valley "Housing Bust"

"housing slowdown" --> "housing downturn" --> "housing slump" --> "housing bust"

From the Sacramento Bee:

Housing bust leaves Valley in the lurch

Construction worker Kenneth Tate lives in a neighborhood so new there are houses going up on the next block, a potent symbol of the Central Valley housing boom. But the home in Merced's Summer Creek development isn't his. Tate, 32, lives with his mom while he looks for a permanent job. With building slowing to a trickle, there's little available at the temp agencies, he said. "Construction," he said, "was good to me."

Few places in America benefited from the housing boom more than the Central Valley. It brought prosperity to this impoverished agricultural slice of California on a scale not seen in decades, if ever. Unemployment in Merced and most other counties fell below 10 percent. Restaurants and shopping centers sprang up to cater to the newly arrived population from the Bay Area and Southern California, bringing new jobs.

Now, housing starts are down 20 percent to 50 percent, depending on the market, and construction work has tailed off. There are fears of widespread foreclosures. A January freeze devastated crops and reminded the Valley that its economy is still largely agricultural. As the housing market peters out, uncertainty abounds. Bankruptcies are up and construction has slowed," said former Modesto Mayor Carol Whiteside, head of the Great Valley Center think tank.
"We're concerned because so much of the employment was due to construction," said Rollie Smith, head of a federal task force on economic development in the San Joaquin Valley. Because of low incomes, the Valley is especially vulnerable to the downturn.
Aside from 900 or so UC employees, Merced hasn't yet developed a permanent base of high-wage jobs. Much of its job growth has been driven by population: construction, retailing, etc. With the boom over, employment in most industries has held up, but construction employment is down 5 percent from last year.
It seemed everybody wanted to buy a home in Merced, even people who didn't want to live here; at the peak, nearly one in five homes sold went to investors, according to LoanPerformance.

Hai Nguyen was one of those investors. The former San Jose resident bought a $420,000 home last year in a new development near UC. But the rental market was weaker than he thought. Now living in Arizona, Nguyen has the home up for sale -- and is throwing in a $40,000 Cadillac Escalade as a sweetener. "I've learned a lesson," said Nguyen, 35, who holds a real estate license. "I'm stuck."
The housing bust, too, could be short-lived. But a resurgence in home building won't be a cure-all, many agree.
Some believe the Valley could follow the same path as Riverside-San Bernardino, whose decades-long housing boom eventually translated into a welter of good jobs. But [Southern California public policy expert Joel] Kotkin isn't convinced, now that Silicon Valley outsources work to the Midwest and India, not Stockton. "You have to have relatively high-end job growth to sustain those high housing prices over time," he said. "I believe long-distance commuting is not a viable basis for an economy."

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