REAL ESTATE DOWNTURN SINKS HOMEOWNERS' FORTUNES IN NEW PLANNED COMMUNITY
By Katherine Conrad
Mercury News
Article Launched: 08/20/2007 01:31:55 AM PDT
At Mountain House, visionaries carefully planned streets, schools, sewers - everything needed to create a thriving community of 16,000 homes in the middle of San Joaquin County's farmland.
Build it and they will come. And they did.
Starting in 2003, thousands of Silicon Valley residents desperate for a house, two-car garage and back yard made the hour-plus commute from the job-rich Bay Area over the Altamont Pass to Mountain House, where home prices started in the low $300,000s.
But then the real estate boom went bust. Last month, DataQuick reported that San Joaquin County mortgage holders were among the most likely in the state to default on their payments; San Joaquin County has the highest foreclosure rate among the nation's 100 largest metropolitan areas, RealtyTrac recently reported.
Mountain House, where Bay Area transplants are 80 percent of the population, is a dramatic illustration of a development that was built as a solution to Silicon Valley's overpriced housing market. Now, it finds itself hurt by high gas prices, ever-worsening commutes and a growing desire among South Bay residents for housing close to Silicon Valley jobs - even if it's condominiums and townhouses.
The trend of building high-density housing projects in the Bay Area's urban communities has taken off in the past several years, the result of land-use policies that allowed developers to build condos and townhomes on former industrial property. This option wasn't widely available when buyers began moving to Mountain House.
It's all taken a toll.
"It is as bad as it looks," said Susan Patteson, an agent with Fox Realty and a Mountain House resident since late 2003. "Homes that two years ago sold at the peak of the market now sell for $200,000 less. We rode the high; now we're suffering the low."
Just four years into the development, about 6,000 residents live in roughly 2,000 homes. Of those, about 60 are in foreclosure, according to Sean O'Toole, founder of ForeclosureRadar.
Yet the major home builders at Mountain House - Pulte, Lennar, Centex and now Shea Homes - say the community is one of their best-performing markets. Given the Central Valley market, where sales are off by more than one-third compared with a year ago, according to the Ryness Report, that's not saying much.
Trouble signs
A sure sign of decline at Mountain House is a dying lawn. A closer look reveals trash, ad fliers shoved under the door, and the clincher: a foreclosure notice or, worse, auction announcement, taped to the window.
These are the same homes that in 2004, 2005 and as late as June 2006 were sold by lottery to crowds of 300 pre-qualified buyers, many of whom camped overnight just for the chance to own a home.
Now they're languishing in a weak housing market.
"The loans are worth more than the house," said Jim Lamb, a Realtor who lives in Mountain House.
Real estate agents say buyers are reluctant to move to outlying regions such as Mountain House and nearby Tracy because homes that had appreciated as much as 25 percent a year are no longer holding their value.
But Paul Sensibaugh, head of the Mountain House community services district, said residents are still very happy with their community and its highly rated school - even if it still lacks a grocery store and companies haven't arrived bringing jobs.
The biggest problem for home sellers in Mountain House is they must compete with brand-new houses still going up. Meanwhile, builders are slashing prices, offering upgrades at little or no cost, and promising to fix anything that goes wrong with the house in the first year. Some builders are even doubling buyers' real estate agents' commission to a previously unheard-of 6 percent.
"You've really got to be in love with a used house to buy it instead of a new house," Lamb said. "People who are here long term will do great. They bought beautiful houses in nice neighborhoods. The real estate market won't stay bad for more than 10 years."
Among the homeowners who are hurting is John Basso, a project manager for Applied Materials. Basso paid $503,000, and spent more than $100,000 on upgrades and a pool.
Basso sold his townhome in Sunnyvale in 2003 and bought a 3,000-plus-square-foot dream house for his family. He and his wife, Yvette, and three children loved the new community, especially the new school. His commute was eased by taking the Altamont Commuter Express train, and the family settled in for the long haul.
"We upgraded our house significantly. We put in a swimming pool with the solar heat and a five-foot-high waterfall," he said. "The only reason was because we had every intention of staying there."
Then earlier this year, Basso was transferred to Austin. The house went on the market in June for $675,000, then $649,950, and now it's dropped to $624,950. "We're not trying to get every dollar out of it," he said. "We're just trying to complete the transaction."
The same can be said by the home builders - all publicly owned except Shea - that are doing what it takes to sell their houses. Pulte, Centex and Lennar are multibillion-dollar companies with deep pockets that presumably can ride out the downturn, as they have in previous cycles.
`Difficult market'
"It is a difficult market for all of us," said Les Lifter, Lennar's vice president of marketing. But, "considering the market, we're still having sales."
Kevin Peters, managing director of Shea Mountain House, said there's no question that 2007 has seen significantly fewer sales than 2006. But, he said, "It's a cyclical business. This is a long-term project. While it's not the most fun time to be in the market, there's not a better project to be associated with."
Nonetheless, building has slowed in Mountain House. Only 577 permits were issued from July 2006 to June 2007 compared with 837 permits taken out from July 2005 to June 2006.
With a glut of houses on the market, why are they building at all? The developers have little choice. They paid millions of dollars to buy the home sites and are obligated to pay for the streets, sewers, water treatment plants and schools before houses can be built. The only way to recoup their costs is to sell homes.
While experts believe the Bay Area housing market will be rocky for the next three years, they aren't guessing how long it will last in the Central Valley, where builders simply have constructed too many houses.
As far as Mountain House resident and Realtor Patteson is concerned, it's a no-win situation.
"If they stop building, the town stops growing. If they continue building, our resales are low," she said. "The market will come back. I would hate to see progress stop on behalf of the resale market. We need our community built."
Master plan for Mountain House
Mercury News reporting
Article Launched: 08/20/2007 01:31:57 AM PDT
MASTER PLAN FOR MOUNTAIN HOUSE
Size: Almost 5,000 acres
Planned by: Trimark Communities
since 1985
Construction began: 2000
Build out: 20 years
Capacity: 16,000 homes
for 43,500 residents
First residents moved in: 2003
Commercial projects: 700 acres designated
Parks: 750 acres set aside
Education: Plans for 12 kindergarten-to-eighth-grade schools, one high school and one community college satellite campus
Infrastructure cost: $2 billion
Contact Katherine Conrad at kconrad@mercurynews.com or (408) 920-5073.
