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San Francisco’s long shadow
The nation’s biggest housing winners and losers live only 80 miles apart. The miraculous housing boom in San Francisco and Silicon Valley helped fuel a similar bubble in nearby Stockton. But when the housing market collapsed, only families in Stockton were left suffering — and still do today.

Altamont Pass. (Preston Gannaway/GRAIN/For The Washington Post)

By Emily Badger Wonkblog April 28, 2016
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STOCKTON, Calif. — East of San Francisco, beyond the Bay Area’s rabid housing market and high-tech office parks, is a different California where the air is hotter, the land is cheaper and the homeowners are enduring a more precarious version of the American dream.

You get there on Interstate 580, through 80 miles of suburbs and farmland, up into the bald hills of the Diablo Range that are suitable for neither. The highway, eight lanes wide, cuts through at the Altamont Pass, 1,009 feet above sea level. And then the hills part and California’s Central Valley comes into view: an unexpectedly flat landscape that feels very far from San Francisco, and where Stockton and its neighbors are still suffering the lingering effects of the worst housing bust in the nation.

The low ridgeline is a physical barrier between unequal fortunes, between record housing riches in the Bay Area and an epidemic of lost wealth in the Central Valley. Home values have doubled in some San Francisco and Silicon Valley Zip codes in little more than a decade. But in the hardest-hit Stockton Zip codes, homes over this same time have lost 20 percent of their value.
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“It was like a typhoon,” Carol Ornelas, the head of a housing nonprofit in Stockton, says of what happened out here.

The national housing market has, broadly speaking, recovered from the crash that plunged the country into a severe recession. But the recovery has also been deeply uneven, worsening divides and creating fissures across the country like the one between California’s coastal and inland communities, according to a detailed Washington Post analysis of changes in single-family home values across the country.

The analysis, a review of home-value data from Black Knight Financial Services on 19,000 Zip codes dating back to 2004, shows how the nation’s housing boom, bust and recovery over the last cycle has exacerbated inequality along lines of geography, race and income.
Here in California, it is no coincidence that the biggest victors and victims in the American housing market exist down the interstate from each other, across the Altamont Pass. Stockton’s struggles are closely tied to the Bay Area’s rise, as the two places, historically disconnected from each other, have grown into the once-empty space in between them. The pressures that have boosted home values in the Bay Area also helped push a bubble over here.

“When they weren’t all that connected, they were actually more equal,” says Jeff Michael, director of the Center for Business and Policy Research at the University of the Pacific in Stockton. Decades ago, average incomes in Stockton and San Francisco were comparable. The gap in home values between them was narrower. “And now they’re growing together and there’s this massive inequality between them.”
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© Mapbox © OpenStreetMap Improve this map, U.S. Census and Black Knight Financial Services
DOWN 21% 95206
Homes in Zip code 95206 in Stockton, Calif. are worth $54,660 less than in 2004. This is in the Stockton-Lodi, Calif. metro area.

The boom years
During the boom years, the moving trucks brought over the Altamont Pass families that were priced out of increasingly expensive communities around the Bay. Hardly anyone moved in the other direction.

Those households helped bring the housing fever with them: a $400,000 enthusiasm for $200,000 homes, a faith that $400,000 homes should become $500,000 jackpots.

They brought demand for entire new subdivisions and communities built on former asparagus farms and almond orchards. And entranced by all the money the government reaped in development fees when those subdivisions were built, Stockton built a beautiful new arena downtown, next to a new minor-league ballpark, right by the site of a planned new marina on the inland channel that leads back out to the coast.

At the time, the rapidly rising home values seemed to say something about Stockton itself — that this was a place that was coming up, that was finally poised to share in the Bay Area’s prosperity.

Scenes around in Stockton, Calif., on Tuesday, April 5, 2016. In many parts of San Francisco, housing prices have doubled since the recession, while Stockton is still recovering. During the boom, a sculpture called ‘Stockton Rising’ was installed outside of the Stockton Arena in 2006.
(Photo by Preston Gannaway/GRAIN For The Washington Post)
A sculpture called “Stockton Rising” stands outside the Stockton Arena, one of the fruits of the city’s surge in revenue from a housing boom that turned to bust. (Preston Gannaway/Grain/For The Washington Post)

“We really did think, ‘Oh great, we’re doing better, things are looking up,’” says Jan Truscott, a real estate agent in town and the former dean of business at San Joaquin Delta College. Stockton was even on one of those lists at the time of “All-American Cities.”

This optimism created fertile ground for banks eager to hand out mortgages to virtually any family that wanted one. And then the forces collided: the surge in families moving over from the Bay, the land and support for a building boom, the subprime lenders who made it easy to buy a home with no or little money down. All those commuters created both demand for housing and the illusion that Stockton’s fortunes mirrored the Bay Area’s. And the city wanted the future the mortgage lenders were constantly predicting, one where the region would grow and values would rise indefinitely.

About the series

A bubble sent home values soaring in many U.S. cities. Their crash pulled the country into recession. After an uneven recovery, what kinds of neighborhoods are better off, or worse?

These stories map the winners and losers of this tumultuous era.

Monday: ATLANTA, GA.
Wednesday: CHARLOTTE, N.C.
Friday, May 6: WASHINGTON, D.C.
Martin Saltzman, 64, bought his modest one-bedroom home in 2006, near the worst possible moment, with no money down. Then, shortly after he moved here from the Seattle area to be near family, the economy collapsed, and he couldn’t find work in the hospitality industry. He took up substitute teaching, and when he was home he watched one cable news show after another in his living room.

“I was watching them continuously to figure out why I was in the situation that I was,” he says, “to try to get some sense it wasn’t necessarily my fault — I just made a good decision at a bad time, or a good decision at a good time that turned bad.”

His home now is worth about half the $126,000 he paid for it. Visionary Home Builders, Ornelas’s organization, helped him refinance the property last year for a lower mortgage payment, which helped. But Saltzman wants to get out of homeowning entirely as soon as he can.

“I have no idea how long that would be,” he says. “Are we looking at another 10 years?”

In retrospect, it’s surprising to economists that prices rose so rapidly here during the boom years — even more rapidly than in the Bay.

“There was just no reason,” says Joseph Gyourko, a professor at the University of Pennsylvania’s Wharton School of Business. Shortly after the crash, while at a conference in San Francisco, he rented a car and drove over to see Stockton, a previously obscure place to economists that had by then become infamous as the epicenter of the nation’s foreclosure crisis. “Why you would think prices would be fundamentally higher in the Central Valley,” he says, “never made sense to me.”
Two very different California stories
Home prices have soared along the coast in California’s Bay Area. Meanwhile, inland communities that had even bigger bubbles are still struggling to recover.
San Jose
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In San Francisco and Silicon Valley, incomes were rising during the bubble years. And the growing demand to live in the Bay Area was outstripping the supply of homes, pushing up prices. But the longtime agricultural economy in the Central Valley wasn’t taking off. Incomes weren’t rising as home prices were. And there wasn’t a shortage of housing.

In the run-up to the bust, though, very different communities started behaving similarly — not just out here, but across the country, says Nobel Prize-winning economist Robert Shiller, who is credited with having predicted the housing crash when few others believed a bubble existed.

“I think that the people in the Central Valley view themselves as a different kind of Californian,” he says. These are practical agricultural people, not tech entrepreneurs; they live in spread-out ranch homes, not ornate Victorians. But in the housing frenzy, the idea of that difference broke down. Whatever was happening in the market on the coast seemed relevant to what should happen here in the great big Northern California economy.
“Speculative bubbles are social epidemics,” Shiller says, “It’s just a thing that spreads from person to person. It’s a thought virus.”

But when the bubble burst — and it burst in the Bay Area, too — places such as San Francisco and Palo Alto were much better prepared to weather the downturn. Stockton was left with bad mortgages, few high-skilled jobs and public debt that would eventually push the city into bankruptcy.

The Bay Area still had Apple and Intel and Stanford and tourists and those spectacular views of the ocean. Those communities hadn’t overbuilt because they hadn’t actually built much new housing in decades; instead, they had let places like Stockton absorb the demand.

“We were the ones benefiting from it over here for a long time,” says Patrick Wallace, association executive of the Central Valley Association of Realtors. “We were the ones selling houses. The contractors were building houses. And the cities were getting the tax revenue. So it is a double-edged sword.”

Legacy of a bust
Scenes around in Stockton, Calif., on Tuesday, April 5, 2016. In many parts of San Francisco, housing prices have doubled since the recession, while Stockton is still recovering. Whole sections of subdivisions were left unfinished.
(Photo by Preston Gannaway/GRAIN For The Washington Post)
A boarded up home in Stockton, Calif., on Tuesday, April 5, 2016. This home has been vacant the whole time he’s lived there, Eric Totman said. In many parts of San Francisco, housing prices have doubled since the recession, while Stockton is still recovering.
(Photo by Preston Gannaway/GRAIN For The Washington Post)
Scenes around in Stockton, Calif., on Tuesday, April 5, 2016. In many parts of San Francisco, housing prices have doubled since the recession, while Stockton is still recovering. Whole sections of subdivisions were left unfinished.
(Photo by Preston Gannaway/GRAIN For The Washington Post)
At top, fences surround an unfinished subdivision in Stockton. Above left, a boarded-up house near the home of Eric Totman, who says it has been vacant the whole time he has lived there. Above right, roads in an incomplete subdivision lead to empty lots. (Photos by Preston Gannaway/Grain/For The Washington Post)

The Weston Ranch subdivision was built right off the Interstate that leads into town, a prime location for would-be home buyers more concerned with commuting 80 miles west to the Bay Area than getting to stores or jobs in Stockton. The developers never finished it, though.

A corner of the neighborhood closest to the highway is preserved at a moment in time just before the crash: Roads for more new homes were paved there, streetlights installed and Italian cypress trees planted. But the houses those roads were supposed to lead to were never built. A chain-link fence now cordons off the property, and someone has planted a yard sign nearby aimed at the neighbors. “TE COMPRO TU CASA EN 7 DIAS O MENOS.” We buy your home in seven days or less.

In this Zip code, 95206, home values in 2015 were still 21 percent below what they were in 2004. Nearly 40 percent of the homes in Zip codes like this one along the interstate received a foreclosure notice in the first few years of the bust. The effects still linger, but they’re subtle: The occasional boarded-up window blends in with the neighborhood’s beige stucco. A scrapper has ripped the air conditioning unit off the back of one house, presumably for its copper wiring.

Eric Totman bought his house in Weston Ranch, a three-bed, three-bath foreclosure, for $145,000 in 2013. It was priced over $300,000 during the boom. When he bought it, the hallway still had crayon scribblings up the wall and an upstairs bedroom painted for a princess. Banks don’t cleanse properties of personal touches the way homeowners do when they’re trying to attract the highest bidder.

This is what Totman could afford — with space for fruit trees and a chicken coop out back — on a middle-class job 80 miles away. He is one of the fortunate ones in Stockton, in that he bought just after the bust. But he still grapples with the region’s other stark reality, because when he bought this home, he couldn’t afford to buy one anywhere closer to his job. Five days a week, he drives to Redwood City on the San Francisco Peninsula, where he owns a business coaching men’s gymnastics.

Eric Totman tends to his chickens at home in Stockton, Calif., on Tuesday, April 5, 2016. In many parts of San Francisco, housing prices have doubled since the recession, while Stockton is still recovering. Some people, like Totman, endure long commutes from Stockton to be able to own a home with property.
(Photo by Preston Gannaway/GRAIN For The Washington Post)
Eric Totman tends to his chickens at the Stockton home that cost him $145,000. A similar home 80 miles away in Redwood City, where he owns a business, would cost $1.5 million. (Preston Gannaway/Grain/For The Washington Post)

“A house this size in Redwood City would be a million and a half,” Totman says, pulling up impossible for-sale listings on an app on his phone. “I thought it would be closer to a million. But no. Million and a half.”

And home values in Redwood City are moving even farther out of reach by the moment. They’re up 55 to 75 percent since 2004. In some Zip codes, that’s the equivalent of more than half a million dollars in a decade. It’s the same story all around the Bay: In San Francisco Zip codes, already high home values are up 84 percent, 96 percent, and 97 percent. In Oakland Zip codes, they’re up as much as 76 percent. In Palo Alto, 155 percent.

So gymnastics coaches can’t live there. Or firefighters, teachers, nurses, cops, chefs, clerks or day-care workers. And because they can’t head west (thanks to the ocean) or north or south (where other coastal properties are pricey, too) everyone pushes inland. It’s not high-skilled tech workers moving over here; it’s the construction workers who build their offices, or the coaches who instruct their children.

Now, 45,000 workers in the county around Stockton head over the Altamont Pass every day to jobs in the Bay Area. Rush hour starts at 4 a.m. San Francisco radio stations report on traffic in the Altamont Pass.

This time of year, the drive passes by rolling green hills, topped with lonely wind turbines. But most of the rest of the year, the views are shades of brown in every direction. During times of drought, smoke rises on the horizon.

Today, more Bay Area commuters are moving in again, and construction has resumed in some subdivisions meant for them along the Interstate 580 corridor. But while that’s helping to drive prices up again, it also means that Stockton doesn’t entirely control what happens next.

Tourists take pictures near the famous ‘Painted Ladies’ in the Alamo Square neighborhood of San Francisco, Calif., on Friday, April 8, 2015. In many parts of San Francisco, housing prices have doubled since the recession, while the city of Stockton is still recovering.
(Photo by Preston Gannaway/GRAIN For The Washington Post)
In San Francisco, tourists photograph the famous “Painted Ladies” in the Alamo Square neighborhood. Home values have doubled in some San Francisco and Silicon Valley Zip codes since before the bubble. (Preston Gannaway/Grain/For The Washington Post)

“At some point, Stockton stopped growing in its own right and became part of something else,” says Hannah Harrison, a schoolteacher and Stockton native who moved back here after college at Berkeley when she and her husband realized that their careers would never allow them to afford the Bay Area. Now she and her husband worry about what it means for a city to become a bedroom community to someplace else very far away, to have so many children whose parents return home late every night, so many community members whose lives are fundamentally oriented elsewhere.

“At some level, why are they becoming more integrated?” asks Jeff Michael of the University of the Pacific. It’s not because Stockton is becoming more like San Francisco; it’s because Stockton is different. The Central Valley can solve problems the Bay Area has. It can build more housing when the Bay Area won’t. It can house middle-class workers when the Bay Area can’t. It can accommodate the growing number of warehouses and logistics operations that no longer make economic sense in the expensive Bay.

“Now the question is: What else?” Michael asks. “Can you take it to the next level where you start to engage in ways that don’t depend upon cheap land?”