The Land of the Open House

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.