The good times have not been rolling for Stockton, California, and that is especially true when it comes to the local real estate market.
In the latest indignity for the San Joaquin County seat, Stockton was ranked at the top of Forbes Magazine’s list of most miserable American cities. According to Forbes, Stockton tops the nation in misery because unemployment is surging toward 15 percent, only 15 percent of adult residents are college graduates, and housing values are taking a painful hit thanks largely to the tanking economy and a disproportionately large amount of foreclosures.
California’s fourth largest inland city, Stockton has an estimated population of 290,141 according to the California Department of Finance. That population saw unprecedented growth over the last decade as residents migrated from the nearby San Francisco Bay Area hoping to escape high costs of living.
Now, however, Stockton is the site of an imploding real estate market. Last year Fortune Magazine ranked the city the second worst real estate market for 2009, projecting a nearly 25 percent drop in home values from 2008’s median price of $248,050. In terms of existing-home sales, the latest Grupe Real Estate-Trendgraphix monthly sales report found a plunge of 22 percent from December 2008 to January of this year.
All this leaves local real estate experts wondering when Stockton will hit bottom – and begin to rebound.
Bad Loans Brought Tough Times
Shell Brodnax brings a unique perspective to a discussion of Stockton’s real estate market. As president and CEO of the Real Estate Staging Association, Brodnax sees first-hand the efforts sellers must make to sell their homes in Stockton’s troubled real market. She also understands the loan-related difficulties that have helped bring the local market to its knees.
“People got in trouble with ARM and option ARM loans,” she says. “The rate adjusted and the house payment went up significantly – sometimes, I have heard, twice the amount of the original payment, mostly about $500-$900 per month. With the option ARMs loans, people didn’t understand that if you make less than the principal payment, the difference is tacked on to your principal. That eats up the equity in a home’s value quickly.”
Along with the loan trouble, Brodnax says, the market began to decline. When that happened, homeowners with option ARMs had no equity with which to refinance in order to lower their payments. This, in turn, caused further market deterioration.
Brodnax also takes issue with claims that local lenders are working with homeowners to get their troubled mortgages back on track. Instead, she claims, banks’ refusal to cooperate means many have lost – and will lose – their homes.
“I am hearing that that is not the case,” she says. “I know a very good friend who is on a fixed income and qualified for his loan on that income. He had an ARM loan and made his $1,100 payment every month for three years. The loan was getting ready to adjust its rate and he contacted his lender six months in advance telling them he would not be able to afford it and to please keep the payment the same … until the market turned around and he could sell it.”
That homeowner’s request was denied and his payment increased by $500 per month. Though he is currently unable to make payments, Brodnax says the bank continues to refuse to work with him in order to keep his home. “He owes more on the home than the house is worth in this market,” she says. “Mind you, three years ago it was worth $350,000, and today it is worth less than $150,000. It would be in the bank’s best interest for them to get his payment back down to $1,100, and they won’t do it. They approved him for that amount at his current income level, and now won’t set it back. It doesn’t make sense.”
The Foreclosure Picture
By the time RealtyTrac dubbed Stockton “the foreclosure capital of the world” in September, the nickname was already old news to locals.
“Residents have been used to the title for quite some time now,” Norbert Huston, a realtor and broker with Huston Associates in Stockton, says. “Agents have been experiencing the activity for quite some time – years, actually.”
Huston says the foreclosures mean increased supply on the market, as well as longer escrow periods and a tougher time getting homes sold. He also points out that more foreclosures mean greater affordability for would-be homebuyers.
Brodnax agrees. “It’s a great place to invest in property at a great price,” she says. “If you can get a rock-bottom steal of a price, you can rent it out. However, there are so many homes on the market for rent, that renters have great choices. If you are a short-term flipper, I don’t recommend buying now… If you’re looking for a long-term investment, though, Stockton is the way to go.”
However, she also considers the glut of foreclosures “a Catch-22 for everyone involved.”
“If you put your home on the market now to try to get out from underneath it, you will never get the money out of it that you need because your house can’t compete with the foreclosure prices,” she says.
Foreclosures are so notorious in Stockton, which last year had the country’s highest foreclosure rate at 9.5 percent, that they have given rise to a new breed of business. Real estate agent Cesar Dias of the Approved Financial and Real Estate Center has launched the Repo Home Tour, a bus which would-be homebuyers can board for a tour of between 10 and 12 repossessed homes.
“You’re just a bus tour away from buying your home,” Dias claims on his web site. “Equity awaits!”
Huston believes that Stockton’s intrinsic advantages will help the city pull through, noting that among these advantages are “our expanding growth, our ability to absorb Bay Area transplants, and our reasonable commute, if you can call 90 minutes reasonable.”
In the next six months, Brodnax believes that things will continue to worsen. However, she believes, the long term will prove kinder to a city that could certainly use some better news.
“Things will bounce back,” she says. “They always do… If you have great credit, you can get a great home at an amazing price. If you sit on that home and don’t take money out of it, when the market turns you can sell at a huge profit.”