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In pockets of foreclosure, housing woes spread block by block
In Modesto, Calif., home prices could fall as much as 25 percent.
By Ben Arnoldy | Staff writer of The Christian Science Monitorfrom the December 11, 2007 edition
Page 1 of 3
Modesto, Calif. - Pushing up against almond groves and dirt-bike trails, the row of homes on St. Salazar Circle marks the furthest advance of Modesto's housing boom – and the start of its scorched-earth retreat.
Brown, unwatered lawns of foreclosed homes compete with the green grass of neighbors still hanging on. Some of the structures, although new, are missing outdoor equipment like air conditioners, taken by metal thieves. One in 4 houses of the neighborhood stands empty, and mortgage defaults are certain to push even more residents, mostly Hispanic immigrants, out of their homes.
It's a sign of the home-loan crisis' uneven impact: light in some areas, heavy in others – often those populated by minorities or the lower-middle class. The concern now is that the woes concentrated in these pockets of foreclosure will spread outward, causing home prices to spiral down rapidly and broadly.
How far could it spread? Much depends on how the overall economy performs. Things like gas prices, job creation, and pay hikes will affect how many homeowners are driven into foreclosure. The biggest danger may be the sinking housing market, with negative forces feeding off each other: Falling home prices, reluctant buyers, distressed sellers, and tighter lending standards by banks.
In a worst case, economists say that a deep national recession is possible. Home prices could fall as much as 25 percent – more in places like Modesto and less in many towns that saw less of a boom. Bank woes could make credit dry up, while the declines in construction and housing wealth could hurt jobs and retail sales.
"Those risks are very large," says housing analyst Celia Chen at Moody's Economy.com. "It's very easy to paint a picture in which even corporations start to cave," in terms of their willingness to invest and hire.
But most forecasters don't see that happening.
Instead, many economists expect several quarters of barely perceptible growth – but no recession – followed by a gradual pickup beginning in the second half of next year. Their reasoning: Jobs and incomes will generally keep growing, thanks in part to growing exports in a healthy global economy. Policy efforts in Washington could also help to stem the pace of foreclosures.
Even without a recession, the baseline forecast of Ms. Chen and colleague Mark Zandi suggests that US home prices will eventually fall 15 percent from their peak. And they predict that 2 million home loans – about one in every 25 in America – are slated to enter foreclosure by 2009.
A crisis from the outskirts in
In the city made famous by the movie American Graffiti, the crisis is unfolding geographically. On its fringes, new neighborhoods, like the one surrounding St. Salazar Circle, the home-loan crisis has hit the hardest. Built during the height of the housing boom, they have the newest residents who paid the highest prices with the most exotic mortgages. After seeing prices rise 10 to 20 percent each year, they're now seeing prices slide downward.
"Right now, our dreams are being crushed," says Marisol Ramirez, a wife and mother of three who bought a home on St. Salazar last year for $370,000. Now, it's priced at $300,000 and the Ramirezes are likely to lose it.
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