One city propped by banks and federal give aways and the other city forgotten.
By Rana Foroohar October 2, 2012
For several months now, I’ve been writing about the 2% economy, the current sluggish state of growth in the U.S., one that I expect to hold for some time. But a weekend spent in southern California, in both Orange County and neighboring San Bernardino, has me thinking about how the American economy isn’t really a 2% economy, but bifurcated one in which some areas are booming, and others are stagnating.
Here in the O.C., things look pretty good. In Dana Point, where I am attending a conference held by TIME’s sister publication, Fortune, the unemployment rate is 5.7%, more than two percentage points below the national average. Hollywood, Silicon Valley, and finance money keep real estate prices relatively high. Warren Buffett has a house in the area, as does George Clooney. There was no shortage of people paying $37 bucks for what looked like about three bites of Hawaiian moonfish in the dining room of the St. Regis last night.
San Bernardino, an hour or two away depending on traffic, may as well be a different country. Indeed, the Del Rosa neighborhood, one of the hardest hit in the housing crisis, looks like a developing one. Groups of young men and children hang out in front of a corner bodega. Among the small, mostly shabby bungalows that make up the housing stock, a few homeowners are making an effort, keeping the grass freshly cut or adorning their porches with an assortment of potted plants. It’s a losing battle, however, because on nearly every block is an abandoned home, left vacant after a foreclosure, or simply abandoned by an owner. Many are painted with gang graffiti, and used as drug dens. In one of these sad places, I saw a slew of dirty mattresses, empty liquor bottles and strewn trash.
The homes that actually had tenants living in them (I couldn’t find any owners) were guarded by pit bulls or large fences. One renter, Myrna Lopez, an assistant in the county office of public health, said she’d moved to the neighborhood because of the low rent — $1095.00 for a four-bedroom, two-bath house — which housed her large extended family more comfortably than the apartment they’d been living in a few towns away. But someone had been shot recently across the street, and she worried about letting her grandchildren play in the fenced-in yard unattended. “My husband is unemployed, so he looks after them all the time,” she said.
I came to San Bernardino because I’m intrigued by the proposal of county CEO Greg Devereaux that the county should use eminent domain to seize and restructure underwater mortgages. It’s a controversial proposal, and one born out of desperation. Four years on from the financial crisis, half of all mortgages in the county are still underwater and the foreclosure rate is 3.5 times the national average. Unemployment is over 12%. Devereaux has put together a group of local authorities to consider whether the county should work with an outside financial group to buy back the properties from private investors at current market value — which would be a fraction of what the investors paid, given that the median home price is about half what it was during the boom — and then restructure the loans at much lower rates. This would give homeowners some breathing room and, hopefully, stabilize the housing market and get the local economy back on track. “It’s the first idea I’ve seen that has enough size and scope to really shift the housing market,” says Devereaux. “It’s not about moral rightness. It’s about our economy. Things are very, very bad here.”
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Proprietary OC Housing News home purchase analysis
$749,000 …….. Asking Price
$749,000 ………. Purchase Price
9/23/2012 ………. Purchase Date
$0 ………. Gross Gain (Loss)
($59,920) ………… Commissions and Costs at 8%
($59,920) ………. Net Gain (Loss)
0.0% ………. Gross Percent Change
-8.0% ………. Net Percent Change
0.0% ………… Annual Appreciation
Cost of Home Ownership
$749,000 …….. Asking Price
$149,800 ………… 20% Down Conventional
3.60% …………. Mortgage Interest Rate
30 ……………… Number of Years
$599,200 …….. Mortgage
$137,830 ………. Income Requirement
$2,724 ………… Monthly Mortgage Payment
$649 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$187 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
$3,561 ………. Monthly Cash Outlays
($612) ………. Tax Savings
($927) ………. Equity Hidden in Payment
$175 ………….. Lost Income to Down Payment
$207 ………….. Maintenance and Replacement Reserves
$2,404 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$8,990 ………… Furnishing and Move In at 1% + $1,500
$8,990 ………… Closing Costs at 1% + $1,500
$5,992 ………… Interest Points
$149,800 ………… Down Payment
$173,772 ………. Total Cash Costs
$36,800 ………. Emergency Cash Reserves
$210,572 ………. Total Savings Needed
The property above is available for sale on the MLS.Contact us for a comparative market analysis, a cost of ownership analysis, or information on how you can make an offer today!
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