MERCED, Calif. — Where did everyone go? Real estate agent Mark R. Gregory is holding an open house to sell a nearly new three-bedroom on a corner lot, and it's as if the Earth had been emptied.
Last year, this Central Valley city enjoyed the state's hottest real estate market. Sure, things have slowed since then, but Gregory possesses a salesman's indestructible optimism.
He put a sign on the lawn, a note on the Internet, an ad in the paper. He's hoping for investors from the coast marveling at how much house you can buy here for $359,000. Or local couples looking to move up into something nicer. Or Bay Area workers willing to make the long commute.
Three hours quietly pass. At 4 p.m., the agent pulls up the sign and locks the door. Total visitors: zero.
"It's like everyone got together and said, 'Let's not buy for a while,' " Gregory says.
After five increasingly wild years, the great real estate boom appears to be coming to a close. The Commerce Department reported Friday that sales of new homes nationwide plunged 10.5% in February, about five times the drop analysts predicted.
In places such as Los Angeles, which have diverse economies, the consequences could be mild. In other communities, where prices became untethered from reality long ago and real estate not only drove the economy but virtually became the economy, the fallout could be much more turbulent.
Merced -- a farming town once known, if known at all, as a place campers turned off California 99 on their way to Yosemite National Park -- is falling into the latter category.
The good times have already ended here, in the same way slamming into a wall reduces your speed. A house will fetch 20% less today than it did last summer, brokers say, assuming it finds a buyer at all.
Just a little while ago, Merced was an investor's dream. The Office of Federal Housing Enterprise Oversight reported this month that prices in the city and surrounding area increased 31% in 2005. The housing agency ranked Merced first in price appreciation in California and ninth in the nation.
That already feels like ancient history, an era when agents would list a property and within hours people would be madly bidding against one another. In five years, Gregory never had a listing that lasted longer than four days.
The number of agents registered to sell in Merced went from 200 to 1,200 as property prospered. Mortgage brokers, title companies and other processing firms flocked to town. One new complex, the Plaza at El Portal, accommodates Chicago Title, Wells Fargo Mortgage, New Freedom Mortgage, First American Title, Building Showcase Interiors, Moonlight Development and Sunlight Development. There's almost nothing that isn't connected to housing.
The phenomenon occurred throughout the Central Valley. According to the Housing Enterprise Oversight numbers, the leading edge of the nation's real estate mania was not San Francisco or Manhattan or Miami, no matter how giddy those markets seemed to their residents, but in some little-known agricultural communities.
The housing agency's No. 1 U.S. city for price appreciation over the last five years was Madera, an old logging town northwest of Fresno that rose 144%. Yuba City, north of Sacramento, was second. Third place went to a Florida city, Port St. Lucie. Fresno and Merced, both at 142%, rounded out the top five. (Los Angeles prices increased 131%, still above the state average of 117%.)
Andrew Leventis, a Housing Enterprise Oversight economist, contemplated this ascending arc in a region that is not a tourist destination or retirement haven, where incomes are not growing and unemployment is perpetually high. He then used an un-economist word: "Shocking."
"It's difficult to know what was driving these high rates of appreciation," Leventis said.
To people in Merced, however, there's little mystery. This was a classic bubble, where people paid increasingly higher prices because they were sure that someone would come along and pay even more. Economists call this the "greater fool" theory.
In 2003 and 2004, carloads of investors would come down from the Bay Area and up from Los Angeles. They would see a $200,000 house and say, "Wow, if this were on the Westside or in Berkeley, it would be worth $750,000, easy. Let's offer $225,000 to make sure we get it."
Then the seller across the street would say, "If that place was worth $225,000, I'm going to ask $250,000."
It helps that Merced is a pleasant place, with an appealing main street and lovely spring evenings. The first new UC campus in 40 years is being built in stages on the outskirts. Twenty-five thousand students will eventually study there, greatly benefiting the local economy.
But at the moment, the city and county are relatively poor. More than 1 in 5 Merced County residents had incomes below poverty level in 2000. The per-capita income of $14,257 was about two-thirds of the state average.