East Bay Housing: worst hit epicenters

The East Bay has become one of the worst-hit epicenters jolted by the housing slump, and the aftermath is likely to slow the region's surging economy and job market, according to a report released today 4-1.

Some of the sharpest spikes in home mortgage defaults in California have surfaced in the East Bay, a study by the University of California, Los Angeles, Anderson Forecast disclosed.

The South Bay and San Mateo County areas also showed a big jump in notices of default, which are filed against home-owners who have fallen behind by about 90 days on their mortgage payments. Those default notices eventually can lead to a lender seizing the house to satisfy the delinquent loan.

"The East Bay is definitely the place where the defaults have risen the most in the Bay Area," said Ryan Ratcliff, an economist with the Anderson Forecast. "It is not quite as bad as the areas surrounding Sacramento, but the defaults are up a great deal." The unsettling outlook was fresh evidence that the ailments that have afflicted the fading housing market have yet to run their course.

"We think this is just the beginning of the default problems," said Edward Leamer, director of the Anderson Forecast. "It really was not until recently that you began to see evidence of the defaults."

However, he cautioned that the numbers might eventually look not too terrible. Karevoll said the current default rates are up from levels of a year ago that were "unnaturally low."

As housing continues to struggle, the big question that analysts hope to answer is whether the real estate downturn could infect the broader job market and economy. The Anderson forecasters believe the housing woes are not severe enough to trigger a recession in California or the nation.

"What happens in housing, stays in housing," Leamer said. "This time, the problems will be restricted primarily to the housing sector."

Still, the weakness in housing will trigger at least some sort of ripple effect in the regions that are hardest hit by the skyrocketing defaults, the Anderson economist said.

"Real estate is enough of a drag to make the economy more sluggish," Ratcliff said. "You have the impact of less home building and less selling of houses. That has a drag on the overall economy."

For example, in February 2006, residential building construction in the East Bay was growing at a rate of 1,000 jobs per year. But by February 2007, that home-building industry lost 600 jobs in a year. Similarly, the real estate sector in February 2006 grew at a rate of 300 jobs a year. In February 2007, real estate lost 600 jobs over a one-year period.

Some analysts believe construction could still hold up despite the housing slump. That's because people who have lost jobs in home building might find employment in other construction arenas, according to Greg Feere, chief executive officer of the Contra Costa County Building and Construction Trades Council.

"The forecasts for construction in the commercial and industrial sector is extremely strong and is going to get stronger," Feere said. "Even though we have the downturn in the residential market, the other sectors will offset it."

Case in point: In February 2007, while residential construction was losing 600 jobs in one year, nonresidential construction gained 500 jobs over the same 12 months and heavy and civil engineering construction gained 500 jobs, a state labor report showed.

Despite the hopeful signs, the housing woes seem particularly acute in the East Bay. The Anderson researchers compared mortgage delinquencies in the fourth quarter of 2006 with the fourth quarter of 2005. The economists found that over the one-year period, Alameda and Contra Costa counties were much harder hit by home-loan defaults than most of the California markets they surveyed:

-Defaults in Alameda County rose 157 percent.

-Defaults in Contra Costa County were up 179 percent.

-Defaults in Santa Clara County were up about 75 percent.

-Defaults in San Mateo County jumped around 95 percent.

Yolo, El Dorado, Placer, Riverside and Ventura counties were the only regions surveyed by Anderson that suffered bigger spikes in notice of default filings than Contra Costa, the forecast found.

It's unclear whether the housing slump will linger or might soon end.

And some home owners who have seen their equity vanish as home prices slump at the same time their mortgage payments have turned more costly may have much to ponder in the coming months.

"There will be a lot of hard calculations by people whose income has been stretched," Leamer said. "They will have to decide if they are going to walk away from their homes."

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