Wednesday, Aug. 13, 2008

World focused on Merced's dire housing situation

National, international publications have chronicled foreclosures here.

By LESLIE ALBRECHT
lalbrecht@mercedsun-star.com

The world's leading business newspaper has pegged Merced as one of America's foreclosure capitals, casting the city's housing woes onto an international stage.

The London-based Financial Times, a daily read by business and banking professionals around the world, published a story Tuesday about the toll foreclosures are taking in Merced. The story quotes local officials and real estate professionals who place much of the blame for Merced's troubles on out-of-town speculators who snapped up houses during the 2005 boom.

The newspaper said the "resulting defaults are causing no small measure of hardship in the city. In some cases, officials say people renting homes from these investors have been evicted as lenders prepare the properties for resale.

"'There should be a special place in hell for those people,'" James Marshall, Merced city manager, says of the speculators. 'I've heard about renters who were making their payments on time and then all of a sudden they would get a knock at the door.'"

Locals give such coverage mixed reviews. Merced Councilwoman Michele Gabriault-Acosta, a residential Realtor, hadn't read the Financial Times piece, but said such stories could keep people from moving to Merced. "It doesn't help matters," said Gabriault-Acosta. "People look at that and they automatically think negatively of the city." Gabriault-Acosta said her real estate clients routinely mention negative news coverage they've read about Merced.

She likened reports of Merced's housing bust to coverage of the downturn Detroit experienced in the 1980s during the collapse of the American auto industry. "You start to second-guess whether it's somewhere you really want to move to and bring your family to," she said.

City officials agree that the media can have a dampening effect on the local economy. Earlier this year, city staff wrote a development forecast for Merced, predicting how fast the city will grow over the next few years. The report listed various factors thought to slow Merced's growth, including lower-quality health care, high building fees and "perception."

"Merced's current headlines have negatively impacted the community's and outside investors' perception of the city," reads the report. "As the mortgage crisis fades some of these headlines may disappear, but the impression will likely last some time."

Loren Gonella, president of Coldwell Banker Gonella Realty, said he agrees that negative news stories could affect a big company's decision to set up shop in Merced. But when it comes to individual home buyers, he doesn't think the media hold much sway.

"I don't know that a lot of people locally read The New York Times or the L. A. Times, but I do think a lot of people locally do realize that it's a great time to buy, because they can afford it," said Gonella. "I guess what it boils down to is sometimes people are just a little smarter than people in the media will give them credit for, and when they see a good deal, regardless of what's in print, they'll buy it."

Gonella said he and his real estate colleagues have fielded queries recently from Time magazine, The New York Times and the Los Angeles Times -- all hungry for information about what's happening on the ground in Merced. Gonella said some national reporters seem surprised that Merced hasn't withered into a ghost town strewn with sagebrush. They're shocked to learn, he said, that real estate is still changing hands in Merced. He noted that Merced County posted more home sales in July 2008 than it did in July 2005, as the boom was hitting its stride.

This isn't the first time Merced's real estate ups and downs have garnered attention from an international media outlet.

In July 2005, The Wall Street Journal listed Merced as the least affordable housing market in the country. Back then, one local mortgage lender sounded a prescient note. Commenting on the Wall Street Journal story, Ed Walters of GMAC Mortgage said Merced's boom had been fueled in large part by subprime loans with adjustable interest rates. He wondered, "What's going to happen two years from now when their rates are adjusted?"

Everyone in Merced knows the answer to that question now.

Reporter Leslie Albrecht can be reached at (209) 385-2484 or lalbrecht@mercedsun-star.com.