Amid a national housing crisis that has hit California especially hard, one might ask how the Davis market is doing – and the answer is debatable.
“I don’t think Davis is immune to the housing bust at all,” said economics lecturer Erick Eschker. “You just have to look at the rest of California and the Bay Area. The price of housing in Davis will be higher than West Sacramento and there might be some differences in how the prices come down, but the direction it’s going is clear.”
California is one of the handful of states suffering from severe foreclosure rates, and according to foreclosure1.com, the city of Sacramento is leading the state with 5,783 foreclosures. Measured by foreclosures, Sacramento County is in the top five of California’s hardest hit counties.
Since January 2008, roughly 20 condos and single-family homes have entered the foreclosure stages in Davis, according to foreclosures.com.
Issues begin for homeowners when they have difficulty paying their mortgages and eventually lose their homes to foreclosure.
This can be attributed to different financial situations, according to Sarah Worley, Economic Development Coordinator for the city of Davis. One scenario is when homeowners who “sort of got into the market only paying interest [and having] no equity” get caught with ballooning payments and can’t sell their house for what they paid for it.
“People were doing anything to get into the market,” Worley said, and as a result were “setting themselves up thinking the values are going to increase.”
Many homeowners have fallen victim to variable interest loans, an issue that hits mortgage payers after the first two years when their income level becomes insufficient to cover interest rate hikes, Worley said.
In Davis, only one foreclosure was documented in 2006. Six were documented in 2007, which is a small number but an exponential increase over a short period of time.
The structuring of the loans might not be the key player in foreclosure, Eschker said, because decreasing values engender all types of issues.
“Interest rates are still very low, and even reset [rates] are low,” he said. “The main thing is people go to refinance, and the prices fall so no one will let them – it’s the price drop that’s largely responsible for the foreclosure.”
The city of Davis has not found links between specific factors and local foreclosures.
Housing programs manager Danielle Foster said that the arguments “are all opinion at this point,” and that no tangible correlation between market activity and whether or not “loans here have been reviewed more closely, people are not stretching themselves [financially], [or] higher income” come into play has been proven.
Sarah Worley, the city’s Economic Development Coordinator, said that it might be difficult to connect a completely unique economy like Davis to a higher order of magnitude, like California or the United States.
“Davis still has preeminent education,” she said. “The fact that [Davis] is an attractive community keeps its demand. That’s why people stay in town and work [elsewhere].”
Some believe the foreclosure issue will impact affordability.
The high rate of foreclosures will end up mitigating the instances of artificial inflation as seen in areas like Sacramento, said Tia Boatman-Patterson, special assistant to state assembly speaker Karen Bass.
“The median income did not support the median price [of a] home, and so [some argue] this will bring housing prices down to a more affordable level,” she said.
No matter the reasons behind the trend, Eschker said that the low prices make it a “buyer’s market,” and so his best advice was to look at the housing prices compared to renting in order to decide which option is more advantageous for you right now.
“Especially if you’re considering to buy a house in California, renting is a wonderful thing to do right now, and buying a few years down the road,” he said, “[then] you’re coming out ahead.”
NICOLE L. BROWNER can be reached at city@californiaaggie.com.
