New York Times: The Most Underwater Community in America

I'm really trying hard to find good economic stories to post to counterbalance our main themes here, but talk about a needle in a haystack.....

Obviously it is not like this in all states, but considering California - if independent - would be the 7th largest economy in the world - as goes California will go much of the nation. There is a neat interactive map directly on the NYTimes website that shows % of households with negative equity (all the usual suspects plus some surprises) and debt to value ratio by state.

Again, this "underwater effect" is something we talked about ad nauseam a year ago - and it will only get worse in the year ahead as property values continue to fall. A lot of the money we throw at the problem is only going to slow down an eventuality.... in the end people will need to afford homes at normalized income levels - until then it's all just delay and smoke and mirrors. [Dec 6: What Should Median Housing Prices be Today?] We're still not near the historical (house) price to income ratio of 2.6-3.0, but one more year of such severe drops as we experienced in 2008 should help us get there fast.

This story also highlights the consumer retrenchment we talk about constantly... and the multiplier effect - it is all derived from housing but each service job lost multiples pain across many other people. Unfortunately the best economic decision for most of these people is simply to mail the keys in, take the credit hit and lower their cost of living by a material amount by just renting anew at much more realistic rates than when these people bought....

• MOUNTAIN HOUSE, Calif. — This town, 59 feet above sea level, is the most underwater community in America. Because of plunging home values, almost 90 percent of homeowners here owe more on their mortgages than their houses are worth, according to figures released Monday. That is the highest percentage in the country. The average homeowner in Mountain House is “underwater,” as it is known, by $122,000. The first homes in Mountain House were sold in 2003, just as the real estate boom began to go into overdrive. Its relative proximity to San Francisco drew many who traded a longer commuting trip for a bigger place.
• Jerry Martinez, a general contractor, and his wife, Marcie, an accounts clerk, are among the struggling owners in Mountain House. Burdened with credit card debt and a house losing value by the day, they are learning the necessity of self-denial for themselves and their three children. No more family bowling night. No more dinners at Chili’s or Applebee’s. No more going to the movies. They fear the future, so they stay home. They rent movies. They play board games.
• “It’s a vicious circle,” Mr. Martinez said. (bingo) But Mr. Martinez acknowledges that it has entered his mind to turn his house back over to the bank. “By next June, if things aren’t better, I’m walking,” Mr. Martinez said. (get the shoes ready)
  
• The Martinezes bought their house in early 2005 for $630,000. It is now worth about $420,000. They have an interest-only mortgage, a popular loan during the boom that allows owners to forgo principal payments for a time. But these loans eventually become unmanageable. In 2015, Mr. Martinez said, his monthly payments will be $12,000 a month. He laughed and shook his head at the absurdity of it.
• Even relatively recent arrivals are feeling a pinch. Kenny Rogers, a data security specialist, moved into Mountain House last year, buying a foreclosed property on Prosperity Street for $380,000. But the decline in values has been so fierce that he too is underwater. (that's a warning for all those buying now or 2009 hoping for a quick "rebound" - much like NASDAQ investors in 2001) He does not indulge much anymore in his hobbies of scuba diving and flying. “Best to wait for a better price, or do without,” Mr. Rogers, 52, said.
• The cutbacks by the Martinezes and their neighbors are reflected in a modest strip of about a dozen stores in nearby Tracy. Three are empty while a fourth has only a temporary tenant. Some of those that remain say they are just hanging on. (again, watch the strip malls.... they empty the quickest) “Before summer, things were O.K. Not now,” said My Phan of Hailey Nails and Spa. “Customers say they cannot afford to do their nails.” She estimated her business had fallen by half.
• At Cribs, Kids and Teens, Jason Heinemann says his business is also down 50 percent. He opened the store in early 2006; last month was his worst ever. “Grandparents are big buyers of kids’ furniture, but when their 401(k)’s are dropping $10,000 and $20,000 a week, they don’t come in,” he said. Mr. Heinemann laid off his one employee, a contribution to an unemployment rate in San Joaquin County that has surpassed 10 percent. He dropped his advertising in the local newspaper and luxury magazines. As Mr. Heinemann’s sales sink, he is tightening his own belt. “I used to be a big spender,” he said. “We’re setting a budget for Christmas.”
• People deciding to do without are hurting a second mall close to Mountain House. There is a shuttered Linens ’n Things, part of a chain that went bankrupt. Another empty storefront used to be a Fashion Bug. Soccer World could not make it. Shoe Pavilion is festooned with going-out-of-business signs.
• First American CoreLogic, a real estate data company, has calculated that 7.6 million properties in the country were underwater as of Sept. 30, while another 2.1 million were in striking distance. That is nearly a quarter of all homes with mortgages. The 20 hardest-hit ZIP codes are all in four states: California, Florida, Nevada and Arizona.