Recession’s Painful Vise Squeezes Homeowners : Poll: O.C. southern foothills residents have seen house values plummet. Seven in 10 find payments a strain.
Roger Harvey used to park his Jaguar and Fiat in front of his hilltop home. The cars are gone now. And so is the house, with its back-yard gazebo, sparkling pool and spectacular view of Saddleback Mountain.
Unable to keep up with house payments and other bills after the recession devastated his small, deck-building company, Harvey and his wife were forced to sell their house last month at a loss of about $100,000. The couple also have separated--in part, he says, because of the stress over their finances.
“It’s been just crushing,” he said, glancing around the two-bedroom Mission Viejo apartment that doubles as an office while he rebuilds his company. “I got caught in a real crunch with both my house and my business. And now, I’ve basically got all the things I started with--my guitars and my fishing reel collection.”
A recent Times Orange County Poll of residents in the new southern foothills communities has found that many homeowners are finding it difficult to make house payments. To make matters worse, because so many bought their homes at the market’s peak in the late 1980s, they have been caught in a painful vise, watching their property values plunge as their payments and taxes remain high.
Nearly seven in 10 poll respondents in Rancho Santa Margarita, Coto de Caza, Dove Canyon, Portola Hills, Foothill Ranch and Robinson Ranch said they found it at least something of a strain to make their housing payments, including mortgage, property taxes, Mello-Roos bonds and other assessments. Even those with annual incomes of $75,000 or more indicated that it was not always easy to meet their housing-related costs.
Housing prices here have slipped 18% to 20% since the recession began, on par with the drop in values for the rest of Orange County, most analysts say. But foreclosures in the foothills communities are running at a rate nearly twice as high as the countywide figure, according to a recent analysis.
“The biggest personal negative for the people living in these new communities seems to be that nagging feeling that their house is not going up in value or, worse, is worth a lot less than it was,” said poll director Mark Baldassare.
“This, coupled with the financial strain that most people say they’re going through to make their payments, is leading to some real stress for them,” added Baldassare, an urban sociologist at UC Irvine.
In another indication that money may be tight for many families, the poll showed that the area has fewer mothers who have stayed home after their children were born. More than seven of every 10 respondents who described themselves as married with children also said that both husband and wife work, compared to 64% for the county as a whole.
The sudden collapse of the real estate market had the effect of crushing the equities of many who bought homes at the end of the 1980s, an effect that was magnified here because so many purchased their homes during that period, said Kenneth Agid, an Irvine real estate consultant.
“It’s a very cruel process,” Agid said.
Overall, despite the recession and its attendant travails, the poll found extraordinarily high levels of satisfaction among residents of the region. Eighty-two percent here said they had “very favorable” views of their communities, compared to the 58% who gave the same response in a recent countywide survey.
There are also encouraging signs here that the housing market, on the decline since early 1990, may finally have hit bottom: a relatively brisk rate of sales at new developments in Dove Canyon, a sharp rise in home sales countywide in December, and “just a lot of people in the building industry beginning to get confidence” again, according to Richard B. Peiser, director of USC’s center for real estate development.
Still, one doesn’t need to look far in these communities to find evidence of financial distress, at least for some.
For example, in Rancho Santa Margarita, there are currently 70 homeowners who are involved in foreclosure proceedings on their single-family, detached houses, a rate about twice that of Orange County as a whole, according to Dataquick Information Systems, a real estate database service.
In the neighboring communities of Coto de Caza, Dove Canyon and Robinson Ranch, the foreclosure rate was equally high, said John Karevoll, financial editor of Dataquick.
“You have to remember the ratio is disproportionately high because there’s a much higher number of at-risk properties in these areas than in the county’s older, more established communities,” Karevoll said.
“So many of these homes were bought close to or at the top of the market. Probably half the homes were bought during the past five years,” since the downturn began, he noted.
Prices have also fallen.
The median price for a resale home in Rancho Santa Margarita one year ago stood at $218,000, according to Dataquick. Now, it has slipped to $187,000, a decline of 14%. Karevoll cautioned against reading too much into those figures, saying that the houses coming on the market lately, which include a greater proportion of homes built since the recession began, are also somewhat smaller than those being sold a year ago.
Another company that provides real estate statistics to lenders, TRW-Redi Property Data, examined a sample of resale transactions in Rancho Santa Margarita homes in 1992 and 1993 and found a drop in the median price from about $199,000 in 1992 to $191,500 in 1993.
In general, property values in the foothills communities, along with those throughout Southern California, have declined 4% to 5% in the past year, and 18% to 20% from the market’s height in the late 1980s, according to Karevoll and other experts, including several area realtors.
“People saw prices going up around 1989 and, out of greed or fear, they rushed out to buy a house or another house. There was both a real fear of being left out and an element of greed in thinking you could make a lot of money in a hurry,” said Alfred Gobar, a real estate consultant in Placentia.
“In that area, a lot of people just went rushing out at exactly the wrong time and got caught when the market turned.”
Roger Harvey’s story reads like a case study of the market’s caprice.
When he and his wife were first married in the early 1980s, they rented an apartment in Garden Grove, then moved up to a rented condominium in Costa Mesa, he said.
By 1983, they had saved $30,000, enough for a down payment on a $135,000 townhouse in Irvine’s Woodbridge community. Benefiting from the market’s upswing, they sold it in 1989 for $285,000 and moved to the elegant home in Rancho Santa Margarita, only to be caught when the crash came.
The Harveys had bought their home for $330,000 and embellished it with an additional $50,000 in improvements, mostly in landscaping, brickwork and the back-yard gazebo overlooking the mountains. They sold it for $275,000.
At one particularly low point, Harvey, 36, said, he drove up to the peak of San Clemente Hill, then to Top of the World in Laguna Beach, gazing out from each promontory in a vain search for any sign of construction, anything that might give him hope.
“I just had to cut everything way back, put my nail bag back on and go back to work,” he said, adding that he has been sustained by a renewed religious faith and the constant support of his pastor.
Ultimately, he was forced to let five of his eight employees go, and to use up the family’s savings and money market accounts to pay his $2,000 monthly mortgage and $500 a month in property taxes, half of which was a Mello-Roos levy to pay for the new community’s infrastructure.
Predictably, Harvey and many others interviewed are opposed to the additional tax. Many areas of the foothills communities are included in Mello-Roos districts created under a 1982 state law that allowed local governments to tax homeowners to pay for building roads, schools and other public facilities.
Opposition has grown enough, in fact, that a large sign on a hillside just above Rancho Santa Margarita and below Robinson Ranch advertises: “No Mello-Roos.”
“It’s really irritating,” said Riley White, a 44-year-old appraiser who lives in Portola Hills. “About a third of our property taxes go to Mello-Roos, but what does it get us? We still don’t have a high school up here. When our kids get to that age, they’ll probably take them and ship them off to Lake Forest or Mission Viejo.”
By many measures, though, there are encouraging signals for the foothills region, both that an economic turnaround is finally in sight and that it may reach this area early on.
Harvey, for one, said he has been cheered by a slow but steady increase recently in the number of calls from people needing new decks or willing to pay for repairs to their old ones. “At least the phone’s starting to ring again,” he said.
Real estate analysts looking for more scientific measures of a turnaround said they, too, see reason for guarded optimism, pointing to increases in construction in the area and an end-of-year surge in home sales countywide.
And several predicted that the foothills region, especially with new roadways increasing accessibility from population and employment centers, may be among the first in the county to emerge from the slump.
When the economy picks up, Agid said, there is likely to be a “tremendous shortage of new housing supply relative to the potential demand. And what there is, it’s all concentrated in that region.”
SUNDAY: A look at the people who live in Orange County’s southern foothills--and why.
TODAY: The recession had a crushing impact on residents, who saw their home values drop, and on many developers, who had to restructure their plans.
TUESDAY: Families are flocking to the new suburbs, where parents praise the many activities for youngsters. But for the teens, there’s not much to do.
WEDNESDAY: Living so far out means secluded neighborhoods and horrendous commutes. Though access is improving, traffic congestion remains a problem.
THURSDAY: Two-thirds of foothill residents expect to be living in the area when 1999 rolls around. But what does that future hold?
THE SOUTHERN FOOTHILLS: Good Standard of Living
Contentment is more common in the new southern suburbs than in the rest of the county. Part of it can be traced to economic well-being: Suburban dwellers are likelier to describe their standard of living as more than comfortable.
* How would you say things are these days? Would you say you’re:
Southern foothills Orange County Very happy 45% 27% Somewhat happy 49% 60% Not too happy 6% 13%
*
Would you describe your current standard of living as:
Southern foothills Orange County More than comfortable 20% 15% Comfortable 62% 61% Not comfortable 18% 24%
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Money Connection
People with higher incomes are much more apt to describe themselves as very happy. However, about half of suburban homeowners say their house is worth less now than when it was purchased. And seven in 10 say making the house payment each month is a financial strain.
Less than $75,000 $75,000 and more Very happy 40% 53% Somewhat happy 53% 42% Not too happy 7% 5% More than comfortable 11% 37% Comfortable 64% 57% Not comfortable 25% 6%
*
House value compared to original price: Worth less: 49% Worth same: 22% Worth more: 29% *
House payment a financial strain (percent saying “yes”): Total: 69% Less than $75,000: 77% $75,000 and more: 56% Source: Times Orange County Poll, 1994; 1991 and 1992 Orange County Annual Surveys, UCI
