Tuesday, Aug. 26, 2008

Merced's foreclosure crisis explored in New York Times story; as story breaks, numbers worsen

Reversing the trend of May and June, more homes were foreclosed in July than sold.

By SCOTT JASON
sjason@mercedsun-star.com

The New York Times, in recapping Merced's housing market climb and crash, drew an obvious conclusion:

No one planned ahead.

And numbers from July -- showing more foreclosures than sales -- demonstrated the continuing toll from that lack of foresight.

A 3,000-word piece in Sunday's edition, with the headline "In the Central Valley, the Ruins of the Housing Bust," zooms in on the greedy spirit that led to the glut of foreclosed homes and neighborhoods abandoned mid-construction.

The city approved subdivision after subdivision, developers took out building permits by the fistful and Bay Area and other speculators thought they could get rich by signing the mortgage on an investment home.

Then, beginning a year ago, it all fell apart. Now there are concrete pads ready for walls that may never be built, bike paths that end nowhere and a foreclosure rate that continues to climb.

"The belief that this dream could be achieved with no risk, no worry and no money down was at the center of the American romance with real estate in the early years of this decade, and not just in Merced," reporter David Streitfeld wrote. "How long will the economy have to pay the price for that illusion? The experience of Merced, which rose higher and fell faster than nearly anywhere else, suggests that recovery from the national real estate debacle will be painful and protracted."

Merced's appearance in The New York Times marks the second major news organization to highlight the city's housing meltdown. Two weeks ago, the London-based Financial Times pegged Merced as one of America's foreclosure capitals, bringing international attention to the situation.

The New York Times story was the 10th most-read article on the newspaper's Web site during the weekend and ranked third in the business section. The Sunday print edition has a circulation of about 1.4 million.

Merced Mayor Ellie Wooten, also a real estate agent, was featured prominently in the article and spent a day with the reporter showing him the city. Though the story blasts the community for not planning ahead, she pointed out that the problem exists across the country. "It's not just Merced," she said. "Look at the other cities -- they're not having a picnic."

The article and its stunning figures -- 4,397 new homes, some costing close to $500,000 for a poor city of 80,000 -- were accurate and still upsetting, she said.

Assistant City Manager Bill Cahill said a story putting Merced's housing meltdown in the national spotlight hurts its image.

"The city of Merced doesn't want to be a poster child for the national foreclosure problem," Cahill said. "We're not happy that this kind of publicity is brought to the community, and I think that speaks for itself."

How fast a city grows is a policy decision left to the City Council. As long as a developer shows financial security, such as a bond, they've been allowed to develop in Merced, which has let demand drive the market.

"I don't think it is accurate or fair to say the city is unprepared or responsible for developers building more houses than the market can handle," Cahill added.

He declined to say what he thought about the article. As long as the housing figures remain grim, he said, more coverage may be on the way.

July's figures for Merced County show that lenders foreclosed on more homes than real estate agents sold. It's a turnaround from May and June, when there were more sales than repossessions.

A record 524 homes went back to the banks last month, almost a 17 percent increase from June. Agents sank "sold" signs in the yards of 405 houses, a 25 percent decline from the previous month.