‘90s housing slump haunts high desert
John Rockey has been hanging drywall for 35 years, and he’s seen it all in the boom-again, bust-again Antelope Valley housing market.
As residential construction flourished in the late 1980s, his company’s ranks swelled to 200 -- then shriveled to five when the economy tanked a couple of years later.
By the time a new building spree peaked in 2005, Rockey’s payroll had again grown to 200. But then came slumping home sales and a sharp rise in mortgage defaults and foreclosures.
Now, his Lancaster-based Progression Drywall Corp. is down to 50 employees, and he’s got a serious case of deja vu.
“This is looking like 1990 all over again,” he said.
For many in the high desert north of Los Angeles, those are chilling words.
The economic downturn that racked California in the early 1990s hit especially hard there. The mere mention of the time summons images of squatters taking over their neighbors’ abandoned houses, of spiking crime rates and unprecedented gang killings, of hemorrhaging home values that took a decade to rebound.
With foreclosures on the upswing and a fresh crop of “For Sale” signs sprouting in frontyards, Rockey and others are bracing for a return trip to a decade they’d rather forget.
“A lot of people are panicking,” said Jaimes Gumaro, a North Hollywood real estate agent who has a listing in a Palmdale neighborhood dotted with homes for sale. “They were expecting to have all this equity, and then it suddenly stopped. Now, they just want to get their money out of it. They’re saying, ‘I’m outta here.’ ”
Regional economists say such fears are overblown, pointing out that the job market is much stronger now than it was then.
But they also agree that outlying suburbs like the Antelope Valley are especially susceptible to the weakening housing market and the mortgage lending crisis playing out across the country.
“Right now the areas which are most vulnerable to real estate volatility would be those areas where there were a lot more new homes being built,” said Mark Schniepp, director of the California Economic Forecast, a consulting firm based in Goleta. “The development community is much quicker to cut prices than existing-home sellers are, because they’ve got to move inventory. It’s not an emotional decision for them.”
Relatively low home prices have long been one of the Antelope Valley’s chief drawing cards, but that benefit has been diminished by flat or falling prices elsewhere.
“Outlying areas do better when prices are going up because people are seeking more home for the money,” said Patrick S. Duffy, managing director of Hanley Wood Market Intelligence. “If prices come down ... then the Antelope Valley has to compete with softening prices in other areas.”
Rising gas prices also could take a toll on the area’s housing market, as prospective buyers think twice about the increasingly expensive commute to jobs “down below” in Los Angeles.
What’s more, the Antelope Valley has attracted waves of first-time buyers and others with modest incomes and sometimes spotty credit who must rely on high-cost sub-prime loans. It’s these borrowers who are now defaulting in record numbers, leading to a precipitous jump in foreclosures.
The numbers help tell the story.
* Foreclosure sales in Lancaster and Palmdale rose to nearly 200 between Dec. 1 and Feb. 28, an eightfold increase in a year. That’s still well below mid-1990s levels, however, according to DataQuick Information Systems, a La Jolla research firm.
* Notices of default more than doubled over the same period a year earlier, totaling more than 1,000 from December through February.
* Housing starts dropped nearly 33% from 2005 to 2006, from 5,076 total units to 3,565, according to the Construction Industry Research Board in Burbank.
* Home sales, including new, resales and condos, fell nearly 40% this year over last for the three months ended Feb. 28, according to DataQuick. Home values, which shot up 25% a year earlier, rose a tepid 3% for the 12 months ended Feb. 28.
For the month of February, single-family home values in Palmdale were down nearly 1% from the same month a year earlier, and in Lancaster prices sank more than 2%.
“Now, we have all these folks who can’t afford their homes and their loans are adjusting, literally by the thousands,” said Peter Terracciano, who founded his Palmdale brokerage, Re/Max All Pro, in 1990, as the housing boom began to go bust.
Despite the negatives, however, economists, public officials and builders say the outlook is far from bleak.
Unlike in the 1990s, when home values dropped by as much as half, no massive layoffs are looming and the size of the area’s housing inventory is not cause for alarm, said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp.
“I don’t think it is going to be that bad,” Kyser said. “In the ‘90s, we had a recession and a brutal economic restructuring, and we lost 200,000 jobs in aerospace just in L.A .County. This time around, we have an economy that is rather healthy.”
The slumping housing sector is not enough to pull the local economy into a bad funk, Schniepp said, and the employment picture has brightened since the time when aerospace was “the be-all and the end-all” for workers in high-desert communities.
“There is more housing development, more industrial development, more office development,” he said.
Brian Ludicke, Lancaster’s planning director, said residential building permits for this fiscal year would number about 1,100 -- down from a high of about 2,800 in 2005. Many builders are scaling back projects, seeking extensions on start times or not starting them at all, he said.
But he noted that commercial development remained strong in his city because of the demand for more restaurants, retail outlets and other businesses to serve a population that has boomed since the late 1980s.
“The commercial guys say, ‘Hey, there are people living in those houses and they’ve got money to spend, and, golly gee, I need to capture some of that market,’ ” he said.
Gretchen Gutierrez, executive officer of the Antelope Valley chapter of the Southern California Building Industry Assn., said builders no longer had the “Build it and they will come” attitude that resulted in huge inventories of unsold new homes in the 1990s. Now, they roll out subdivisions in small phases of perhaps five houses instead of 50.
Builders also have adjusted to the market by coming up with new incentives, offering to cover prospective buyers’ closing costs or throwing in kitchen upgrades or landscaping packages. Some have cut their prices, Gutierrez said, but not by much.
“No one is running ads saying, ‘Hey, we’ve slashed $100,000 off our prices, so come see us this weekend!’ ” she said. “We’re not seeing that, which is good.”
Although no major new developments have been announced lately, work continues on already approved projects such as the 7,000-home Ritter Ranch development in Palmdale.
Empire Cos. also is proceeding with Anaverde, a 2,000-acre development in west Palmdale that will have about 5,000 homes. About 900 have been completed, Gutierrez said.
James Previti, Empire’s president and chief executive, said a loss of sub-prime lending probably would put a temporary drag on sales. But he thinks that buyers will find alternatives in government-backed Veterans Affairs and Federal Housing Administration loans.
“I think we will be adversely affected for one or two quarters as we transition into government financing,” he said, adding that he was “still fairly bullish on the Antelope Valley.”
Drywall contractor Rockey, who gets most of his work from large builders, has a dimmer outlook.
“Every customer has a different story every day,” he said, “and they’re not good stories.”
He recently learned that the builder of 300 new houses he’d been lined up to drywall in Rancho Cucamonga abruptly halted the project, costing Rockey $4 million in work.
“We’re getting killed,” he said.
Homeowner Debbie Brown remembers the last time it got ugly in Palmdale, right after she moved there in 1991. When the size of their mortgages exceeded the value of their homes, she said, people simply walked away.
“Houses were getting dumped right and left,” she said. “There were all these empty houses, and people were crawling in through the screens and living in them. It was really scary.”
Palmdale Mayor James Ledford said his city had taken steps to ward off a recurrence of past problems, citing efforts to attract new business, monitor the upkeep of vacant properties and conduct its own inspections of government-subsidized rentals.
“My fear is not as strong today, obviously, as it was in the ‘90s,” he said. “But when the ‘90s hit, I think it surprised everybody and showed that the outer regions are a little more vulnerable than the core. I do feel confident that as a city we have done things to protect us.”
Terracciano, the Palmdale real estate broker, fears that many homeowners will walk away from their properties, as they did before.
“Commuters are saying, ‘Why am I driving four hours a day, getting up at 4 o’clock in the morning and getting home at 7 or 8 at night, when my home is $50,000 upside down? Why am I banging my head against this wall when I can go back to L.A.? I might not be able to own a house, but my quality of life will be better, and I’ll be able to spend more time with my family.’ ”
He said his business was off 30% so far this year, on top of a 20% decline last year. One of five sales has fallen out of escrow in the last month, he said, as lenders have pulled back on sub-prime loans.
Still, Terracciano has ridden the ups and downs of the area’s housing market long enough to remain optimistic.
“The Antelope Valley is still the last affordable place in the L.A. area,” he said. “As long as the job market remains relatively strong, we’ll be all right. We will survive.”
Times researcher Scott Wilson contributed to this report.