In foreclosure city, signs of life amid low prices

STOCKTON, California (Reuters) - In some areas of California, so many foreclosed homes are available to buy on the cheap that real estate agents are discouraging prospective sellers from even putting their houses on the market.

A foreclosed home is shown in Stockton, California in this May 13, 2008 file photo.REUTERS/Robert Galbraith/Files

Perhaps the most extreme example of this is Stockton, about 85 miles east of San Francisco, where roughly three of every four homes for sale are in or on the path to foreclosure.

The city’s resale market is “pretty much gone,” said Cameron Pannabecker, owner of Cal-Pro Mortgage Inc.

“I don’t know an agent today who would take your listing unless you’re a hard-luck case. There is just too much competition,” Pannabecker said. Properties that at the peak of the market two years ago were selling at $500,000, or appraised at $500,000, are now selling for $200,000, he said.

And because foreclosures dot all areas of Stockton, buyers have their pick of properties, said John Knight, a professor of finance and real estate at Stockton’s University of the Pacific Eberhardt School of Business. “Honestly, there isn’t a huge amount of difference between a foreclosed home and a regular home than the prices,” Knight said.

Worse for people trying to sell their homes, lenders in possession of houses and condominiums may keep their fire-sale in full swing for months to come to attract investors to a market near the top of U.S. surveys of areas hit by foreclosures.

“It’s a tough market to be a normal seller,” said Stockton real estate agent Michael Blower of Blower Realtors. “I’ll really ask them, ‘Do you need to sell?’ Because your competition are banks who want to clean it off their books.”


Calling up listings on a database, Blower noted just over 3,500 of nearly 5,000 local homes listed for sale are in some stage of foreclosure. “There are more listings coming,” he added.

More listings would add pressure on local home prices. But they may only hold prices down rather than drag them lower because investors are slowly coming to Stockton in search of bargains, and in some cases they are in bidding wars, albeit at comparatively low prices.

“We heard yesterday there were 36 offers on one house,” said Terry Hull Sr., a veteran Stockton property manager and owner of property management company W.T. Hull Co Inc.

Hull said he, too, may soon put offers on local properties because they have become so cheap: “We’re going to buy about 50 houses because we know it’s an opportunity you rarely see.”

Stockton’s home prices surged earlier this decade amid a building boom seizing on skyrocketing prices in the San Francisco Bay area displacing middle-class buyers.

Many headed to Stockton, historically a sleepy agricultural distribution center, and neighboring towns more than hour’s driving commute east. Routine home financing, as in many other markets, was in the form of risky adjustable-rate mortgages.

When low interest rates reset, many of those mortgages became too expensive to maintain, triggering a wave of defaults and foreclosures.

Distressed borrowers who manage to sell their houses are in many cases able to rent equivalent properties for about half the cost of their monthly mortgage payments. “I don’t know of anybody who has been foreclosed who is moving into an apartment,” said Paul Jacobson, an associate at W.T. Hull Co.

Investors have taken notice that rental demand in Stockton is on the upswing while home prices have fallen, providing an opportunity to turn foreclosures into profits, said Cesar Dias, a Stockton real estate agent who arranges bus tours of foreclosed properties.

Dias said one foreclosed home he showed last month sold for $80,000, or $11,000 above its asking price, after 12 days on the market. The two-bedroom, one-bathroom house may rent for up to $1,000 a month and generate a monthly profit of up to $400.

Investors likewise pounced on a three-bedroom, three-bathroom home in a gated subdivision that Dias just showed. It has at least three offers at its $220,000 asking price, he said. “People are cherry-picking and finding the right ones,” Dias said. “They see prices are at a bottom.”

“Do I see the tide turning? Yes,” Dias added.

Editing by Adam Tanner and Eddie Evans