TOPICS > Economy

Foreclosure Crisis Brings Challenges, Opportunities to Stockton, Calif.

December 25, 2008 at 6:15 PM EDT
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The economic downturn in Stockton, Calif., one of the first communities in the country to experience the foreclosure crisis, is bringing challenges and opportunities there. Spencer Michels reports from the central California city.
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AUCTIONEER: … road, really nice home, only 30 grand to start it. What a value! It’s $30,000…

SPENCER MICHELS, NewsHour correspondent: Thirty thousand dollars for a home? That’s what auctioneers were asking recently in Stockton, Calif., one of the first communities in the country to experience the foreclosure crisis and recession, and now trying to figure out how to recover from them.

With banks unloading a record number of foreclosed homes, prices have plummeted more than 50 percent.

So this is one of how many properties you have?

LENI ATKINSON, realtor: I have 20 listings currently.

SPENCER MICHELS: Realtor Leni Atkinson is caught up in the crisis. She specializes in selling foreclosed properties for banks. She checks her listings often to keep out squatters. Sometimes she has to evict people.

LENI ATKINSON: You feel bad for the folks who have lost their home. Then again, it’s an opportunity for someone else.

SPENCER MICHELS: A few years ago, this poorly maintained little Victorian in south Stockton would have gone for $200,000, but the auctioneers, working for the bank, sold it for $40,000. That could be a good thing, says Atkinson.

LENI ATKINSON: It’s a great opportunity for people to get in and really own their first home at a great price.

SPENCER MICHELS: Are people kind of nervous about the fact that the market is so bad it could even go lower, money is hard to get?

LENI ATKINSON: If they’re nervous, I don’t see it. I see the buyers coming out in droves. I have been doing fabulous. It’s been an unbelievable year selling foreclosures. I love it.

Despite woes, some see opportunity

SPENCER MICHELS: For Atkinson and for the auctioneers, sales have soared in recent months, evidence of at least one upside to an otherwise gloomy economic picture. Many people in Stockton see new opportunities in the current economy.

Vernon Harper and Garnet Carlson won a bid on a three-bedroom, two-bath fixer-upper for $56,000. They've been through a few housing crashes and feel confident this is a good time to invest.

VERNON HARPER, homebuyer: The price of property is down. I mean, why wait for it to go up to start buying?

SPENCER MICHELS: Bob Bellack, CEO of Zetabid, the company which organized the auction, says he agrees there's a bright side.

BOB BELLACK, Zetabid: We think we're providing an important service to the economy overall, because we're providing an outlet for the banks principally to move their inventory out and get the best possible prices. And as that happens, obviously, the banks get healthier, and then the local economies get healthier.

SPENCER MICHELS: That positive outlook doesn't change the fact that much of the economy is in deep trouble in Stockton, a town of 300,000 in the agriculturally rich Central Valley, two hours east of San Francisco.

Home construction was a mainstay of the economy here. Most of it has ceased. Consequently, sprawling housing complexes have been abandoned. Unemployment is more than 10 percent, well above the national rate, and stores and businesses have closed. Even city services have been cut, and predictions are that police and fire budgets are in trouble.

The local food bank is seeing a 10 percent increase in clients, says community outreach coordinator Kristine Gibson.

KRISTINE GIBSON, Stockton Food Bank: It's been horrible. And I know that we're seeing an increase of clients because of that, too, because people have to, you know, try and pay their mortgage so they have to cut other things. So they come here and get the free food to help with the grocery bill.

Economy angers some residents

SPENCER MICHELS: Some people are angry. This foreclosed home was damaged by former residents who trashed the walls in frustration as they moved away. At the 141-year-old Bank of Stockton, President Doug Eberhardt says he's never seen anything like it.

DOUG EBERHARDT, CEO, Bank of Stockton: The median-price home has gone down between 52 percent and 53 percent from its high. And if you were to compare that with the depression, it was only 30 percent. So you could almost say that San Joaquin County had a real estate depression.

SPENCER MICHELS: That would seem to be pretty devastating.

DOUG EBERHARDT: Pretty devastating.

SPENCER MICHELS: However, the bank itself actually represents a bright spot in Stockton's economy: It and other community banks are doing well. Eberhardt says he's proud he didn't offer any subprime loans, which he was suspicious about from the start.

DOUG EBERHARDT: Most of the loans that were made, the so-called subprime loans, were put together in our community by mortgage bankers, and they would make loans to the individual homeowners and syndicate them, sell them to Wall Street.

And back in 2005, when we started to advise our customers of the impending problems that they were going to experience if they didn't start to get liquid, and most of them took our advice.

SPENCER MICHELS: If you could do that, why couldn't some other bank do that, some big bank?

DOUG EBERHARDT: Well, it's because we happen to be a little bit closer to our customer base than a big bank.

SPENCER MICHELS: At a time when it's almost impossible to secure credit, the Bank of Stockton is extending loans to long-time customers, like commercial builder John Reusche.

JOHN REUSCHE, commercial builder: I was doing custom homes primarily, and then I sort of evolved into doing a lot of remodelings. Remodeling has really picked up a lot.

And, also, I'm now doing some commercial ventures, as well. And if you're willing to approach every little end of the business spectrum, that really is what will keep you successful in this marketplace.

Avoiding 'complete disaster'

SPENCER MICHELS: Other factors which have helped Stockton avoid a complete economic disaster relate to long-term strengths, like agriculture and transportation.

Ironically, productive farmland -- once threatened by encroaching housing developments -- may be the salvation of the community. Agriculture has seen high prices, strong exports, and high profits.

Farming generates $6.6 billion in economic production for San Joaquin County; 18 percent of all jobs here are connected to agriculture.

Because of its geography, Stockton has long been a transportation and warehousing hub, says economist Jeff Michael.

JEFF MICHAEL, economist, University of the Pacific: We're actually seeing job growth in areas related to distribution and transportation, because it's a strategic location.

SPENCER MICHELS: At the port of Stockton, on a shipping channel connecting the city to San Francisco Bay, losses in business from the halt in building have been mostly offset by gains in agriculture and some industries new to the port. Richard Aschieris is port director.

RICHARD ASCHIERIS, director, Port of Stockton: We've seen downturns, such as cement, which is one of the operations behind me. But the good fortune of the port is that we do have strong ties to the agricultural industry. We import more than 90 percent of the fertilizer that's used in the San Joaquin Valley.

Hoping for Congressional help

SPENCER MICHELS: Aschieris is hoping Congress will allocate money for public works infrastructure projects, which would keep the cement industry afloat.

But he says the key for the port's survival has been diversification, building new facilities with an aim to increasing high-paying jobs in the area. He sees new opportunities in green technologies, among them a new contract with Vestas -- a Danish windmill maker, and a NewsHour funder -- who can use the port's two-mile-long loading dock.

RICHARD ASCHIERIS: These are windmill parts that are manufactured in Vietnam, shipped directly to the port of Stockton, where they're put on these rail cars, and then they're shipped into the Midwest.

SPENCER MICHELS: And is this kind of the answer economically to the downturn in the economy?

RICHARD ASCHIERIS: Well, I think by having these green opportunities, it's given our people that work on the docks more jobs, and it's given people that are all involved in that whole supply chain more jobs.

SPENCER MICHELS: Jeff Michael, who directs the university's economic forecasting center, says the huge housing and foreclosure mess itself may have a bright side.

JEFF MICHAEL: That's had a lot of real social impacts and dislocation of families, but it's also sowing the seeds for a better business climate going forward and lowering the cost of living for folks around here. So it's creating some positive news, in addition to the negative impacts.

SPENCER MICHELS: Michael acknowledges that, despite some favorable signs, jobs won't be easy to come by right away and housing prices may continue to fall.

JEFF MICHAEL: Certainly we're going to see some job loss. The housing recession has spread out across the consumer economy, and it's really going to be more of a consumer recession going forward.

But I think that the stage is set for a strong recovery when things turn around probably a year from now or more.

SPENCER MICHELS: That recovery depends, Michael says, not just on solving Stockton's own housing crisis, but on coping with the global economic downturn, which is now starting to affect California's Central Valley.