Bay Area investors, commuters driving up San Joaquin Valley home prices
Bart Ah You / The Modesto Bee
In the housing bubble of 2004 and 2005, Stanislaus County’s median peaked at $396,000
Bay Area investors and long-distance commuters are hitting the road again and bidding up home prices in the Northern San Joaquin Valley,which until recently was the epicenter of the nation’s housing market collapse.
Stockton, which became a Wall Street punchline in the housing boom and filed for bankruptcy protection after the bust, has seen its medianhome price rise by 30 percent in the past year, according to DataQuick.
Tracy, a burgeoning bedroom community for Bay Area “super commuters” in the boom, experienced a nearly 40 percent gain in the median home price from August 2012 to August 2013, the San Diego-based real estate information service said.
And Lathrop, a former farm town that sprouted roomy, suburban-style houses, saw its medianhome price soar by nearly 50 percent, one of the biggest increases in the nation.
While prices in the San Joaquin Valley remain far below their boom-era peaks, “you have an eye-poppingly high gain,” said DataQuick analyst Andrew LePage.
From August 2013 to August 2013, the city of Sacramento experienced a nearly 40 percent rise in its median home value, DataQuick figures show.
Experts said the same factors that have driven up Sacramento-area home prices in the past year – heavy investor activity, record low mortgage rates and tight inventory – are at work from Stockton to Modesto. But those areas also are seeing a growing number of buyers from the Bay Area, where homes cost two or three times as much as homes in inland areas.
“Especially Tracy, Lathrop and Manteca have really felt the Bay Area influence coming out,” said Aaron West, an agent with PMZ Real Estate in Modesto. Prices fell so low the the homes looked like bargains compared with the rent they would generate, he said.
At first, the buyers were professional investors scooping up cut-priced homes 10 at a time, he said. Then came some Bay Area residents who wanted to buy one or two rental homes. Now, with prices rising fast in the Bay Area, homeowners are once again driving across the Diablo Range to seek out homes they can afford, he said.
West said he expects prices to continue rising because there is more buyer demand than supply. Few new homes have been built in Northern California’s inland communities since the market crashed in 2007, he said.
“Until the new home builders really start building in force, there just aren’t enough homes for the amount of qualified buyers that are out there,” West said.
In the housing bubble of 2004 and 2005, Bay Area commuters, speculators and local buyers – many using subprime loans – pushed prices in the Northern San Joaquin Valley beyond all reason. Houses in some Valley towns sold for $800,000 or more before plummeting in value by more than half.
Stockton’s median home price reached $370,000 in 2005. Jobs in the largely blue-collar city couldn’t support such prices over the long term.
“I don’t think you’ll find anywhere that the bubble was inflated as much as it was in Stockton,” said Jeffrey Michael, head of the Business Forecasting Center at the University of the Pacific in Stockton.
City leaders relied on a sustained housing boom and surging tax revenues to fund waterfront redevelopment and generous pay and benefits packages for public employees and retirees.
Meanwhile, Wall Street traders joked that Stockton was a “subprime nirvana” that helped pioneer the so-called NINJA mortgage, which stood for “no income, no job, no assets,” Lawrence McDonald, a vice president at Lehman Brothers wrote in his book “A Colossal Failure of Common Sense.” Lehman Brothers, one of Wall Street’s biggest investment banks, collapsed in 2008 under the weight of failing subprime mortgages.
When home prices came crashing down in Stockton, the city became America’s foreclosure capital. Developer fees and property taxes dried up. Last year, the city of 300,000 became the largest to declare bankruptcy until Detroit filed for Chapter 9 protection in July.
“The primary driver of Stockton’s bankruptcy,” Michael said, “was the housing collapse combined with a city that made a lot of risky and poor financial decisions.”
The median home price in Stockton fell to less than $115,000 in early 2012, DataQuick reported. In August, the median sales price was $155,000 – 30 percent higher than the same month a year ago but still nearly 60 percent lower than the peak of 2005.
Such low prices, combined with today’s ultra-low mortgage rates, make it more affordable to buy than to rent and have drawn would-be homeowners despite the stigma of the city’s bankruptcy, Michael said. Rising home prices will help boost city revenues, but “it’s not the cavalry that’s going to save the city from bankruptcy,” he said.
South of Stockton, areas such as Tracy, Manteca and Lathrop still make sense as communities where Bay Area workers can afford large suburban homes on middle-class salaries, even if it means a lengthy commute. Median home prices there are now in the $250,000 to $350,000 range after soaring above $450,000 in the boom years.
While home prices in those areas became “unhinged from reality,” it wasn’t irrational for Bay Area buyers to want to move there, Michael said. The cities are connected by interstate highways to the much pricier Bay Area via the Altamont Pass.
“That’s why driving over the pass doesn’t look so bad to people,” Michael said.