Every city has a story to tell about the economic crisis and everyone is looking for signs of a recovery. If the strength of America is its middle class, and the middle class resides mostly in the suburbs, then America’s suburbs are where we should look for signs of a recovery.
Midway between San Diego and Los Angeles, east of Orange County, there is the bedroom community of Temecula, California. Temecula is a master planned suburb situated in a beautiful valley within an hour commute of San Diego to the south, Los Angeles to the north, and Orange County to the west.
During the era of mortgage inferno between 2003 and 2007, Temecula was a hot spot of house flip fever in southern California, even featured on the A&E series Flip This House. Chuck Prince’s Citibank and almost every major lender performed the musical chair boogie here. No lender could get down and do the hustle like Angelo Mozilo (Countrywide) though; local realtors place his subprime super funk at the scene of the crime for more than half of all foreclosures.
Because Temecula shone so brightly during the liquidity bubble, it was completely extinguished during the decline. Forty to fifty percent off peak is common for real estate prices today, and a large number of neighborhoods are valued lower than their construction sale price.
Almost everyone who bought a home here after 2003-2004 under liberal lending rules is upside down in their original mortgage. Not just a little bit upside down, many are one hundred to two hundred thousand dollars upside down. This does not include equity line or second mortgages. A typical house bought in the three hundred thousand dollar range in 2003 went up about one hundred thousand dollars a year until 2007, then plummeted back into the three hundred thousands range.
Of course, during the decline many people walked away, and in 2008 these homes were dumped on the market sending it further into a downward spiral from which it has not recovered.
People who felt completely violated decided to “stick it to the man” on their way out and removed appliances, fixtures, crown molding, cabinetry, and anything else they could take. A relative few raised the malicious bar even higher and destroyed floors and walls. I heard about one house where someone poured concrete down the plumbing. Keep in mind that these were high quality houses built by first tier builders. This kind of behavior puts “subprime” in a whole new context.
However, a lot of people who are significantly upsidedown in their mortgage didn’t walk. Their Pavlovian instinct honed over a lifetime of generally rising prices tells them that America will rebound from this recession just like it has every time before. All hail the triumph of the optimists. I propose there should be a new credit rating category above 1000 created just for these patriots.
The shadow inventory here remains formidable. It is hard to pin down the numbers, but realtors phrase it in terms of time: “there is 6-12 months of foreclosure inventory that is not listed yet.” Except for brief spurts higher in the summers of 2009 and 2010, the market has moved sideways to slightly down since 2008, and while many homes are selling, including a lot of new homes, houses continue to sit empty in newer neighborhoods without “For Sale” or “For Rent” signs. Some are caught up in a foreclosure process that is lengthy due to a gauntlet of horrible record keeping, lawsuits, second mortgages, liens, and lost paperwork. Others are badly damaged and in need of repair, and still others are privately owned by individual investors and consortiums that snapped them up after the crash, but inexplicably don’t maintain or rent them out.
I read recently that Department of Homeland Security Secretary Janet Napolitano has suggested we replace the word “terrorism” with “man-caused disasters.” When I first heard this Orwellian-style spin I had to laugh, but then it occurred to me that what has happened to America’s suburbs, cities like Temecula, are man-caused disasters on a grand scale. Subprime fraud has displaced more people and affected more lives than any act (previously known as terrorism) ever committed on United States soil. Five million Americans have lost their homes to foreclosure in the past two years. It is estimated that one in four Americans are under water in their mortgage. I am all for the term man-caused disaster as long as the perpetrators who inflict disaster with greed receive the same punishment as those who destroy with bombs.
The community of Temecula is active and strong. They have banded together to recover from the “an-caused disaster perpetrated on them by regulator malfeasance and corporate criminals. Neighbors work together to research the empty houses in their neighborhoods in order to ward off the recent wave of criminal activity sweeping Southern California and the nation that was unimaginable 5 years ago: fraudulent fly-by-night property management companies target empty homes and rent them on Craig’s List, scamming renters for deposits and rent until the real owner shows up, or squatters who just break in to homes, pretending they are new owners or renters.
Temecula is the epitome of a California middle class suburb. Everything that made it a house flip Mecca still exists except the rising price of homes. Reasonable commuting distance to major metropolitan work centers, a clean and new community with a charming “old town” core, a wine country, parks and ball fields in every neighborhood, and a thriving city center of commerce, restaurants, and entertainment. It is a magnet for new business; recently, Virginia hamburger restaurateur Five Guys Burgers & Fries selected it as a California test city. It has good schools, the biggest Harley Davidson dealership I’ve ever seen, and it permeates that quintessential California feel with lots of street rods, choppers, and skate boarders.
Yet, Temecula, California, and middle class suburbs like it all over America are uninvestigated crime scenes. The victims of a man-caused disaster who try to remain upbeat while they tend to serious trauma. They are the victims of an American tragedy that is being written off as an economic anomaly while the government artificially props up the perpetrators.
When a real recovery does get underway, it is likely that these middle class suburbs will feel and see it first. It is not happening yet, and it probably won’t happen for a very long time.