An editorial from the Merced County Times in California. "Lest anyone forgot, Merced was the poster-child for the American sub-prime mortgage nightmare (2007-2010). In the end, Merced housing and commercial real estate collapsed with some of the highest foreclosure rates and family displacements in the nation. The impact is still seen throughout Merced and Atwater after 12 years; blighted business corridors, vacant commercial spaces, forgotten building lots and a cityscape still littered with unused roads, addled utilities, taxpayer financed land/building fiascoes and missing or destroyed landscapes."

"Yet things are incredibly better than even a few years ago. The Merced 2020 Project is projected to drop $1.3 billion in public-private investment into this town of 83,000. How much of that construction money actually stays here long-term is unknown though. Many people naturally want another Merced real estate boom declared in the frenzy."

"So if school is out, the University is expanding and Bay Area buyers have cash – is it time for everyone to go into debt and buy Merced real estate again? What is the same and what changed since the last real estate free-for-all? The Merced real estate market top was October 2005, when the median sale price of an existing detached Merced home was $344,615. By January 2010, that same statistical house bottomed to $96,666 and that does not include an unprecedented era of un-marketed shadow inventory held by the banks."

"According to the California Association of Realtors (CAR), the median price of a Merced home increased by 6.6% within the last year alone to $276,000 with the total number of County sales increasing over 22% for the same period. These general statistics won’t tell you the things that matter though; location, price per bedroom, cost per square foot, lot size, which school district or local crime rates. Real estate sales are also seasonal with Summer being the high so comparing late Spring to December does not a reportable trend make. Speculating on annual house appreciation alone is what got Merced into trouble in the first place. So let’s consider some other bigger ideas impacting Merced real estate."

"Furthermore, the CAR benchmarks a First-time Buyer Housing Affordability Index (FTB-HAI). This measure attempts to describe households making a first-time purchase of a 'starter-home' — those 667+ new homes popping-up around Merced. Often these buyers exploit special builder or government incentives and lower down payments."

"An even murkier issue is new buyers are closing through the builder and those transactions are not all captured through the CAR/Multiple Listing Service system for analysis. So while 'the real estate numbers' point in a cautiously positive direction, that perspective is still divorced from the emotional and financial reality of finding, looking at, negotiating for and purchasing a home."

"Pretend you are a home builder and you finally pay for permits on 100 new homes. Not only do you have to get your construction loan, build the infrastructure, deal with subcontractors and hire sale agents, but you also have to hope your buyer closes within weeks of final construction. In this environment, the builder might want to extend their own financing — especially if they can get a 20+% premium for their product — rather than relying upon an outside bank to finish the job."

"This 'in-house' finance practice is supported by piles of money available from hedge funds, money market managers and the like — all offering terms competitive or 'faster and better' than a buyer’s traditional commercial bank. In time though, underwriting can become lax as the builder and financier both want 'a sale' on their books by any means necessary — increasing risks for everyone long-term."

"This was the genesis of the sub-prime meltdown as this shadow finance system grew to become counter-parties in funding and securities markets. While commercial banking was greatly reformed post Great Recession, the shadow banking sector remains opaque and ready for business at consumers’ long term expense and risk. Adjustable rate mortgages and other sub-prime products still exist. The national foreclosure rate was at a historic low – right before the subprime meltdown. There was no canary in the coal mine or slow melt-up in risk."

"It’s also worth looking at what is actually being sold as a 'starter home' in Merced these days and compare to established neighborhoods. Look through the models and the first thing you will notice is how indeed small the lots and bedrooms have become over the years. Factor in the prices verses the square footage and you will see how costly smaller homes can be for new families."

"The neighborhoods being approved by the City today are not the same as the ones you grew-up in. Now the front door is 14 feet from the curb of a busy street, your yard is the minimal set-back. Street parking is further strained as densities creep up and lot sizes shrink. Beyond that, the City may allow new homes to be built without trees, or not match existing neighborhoods, no alternating elevations or even different exterior paint colors. Patches of stained wood-chips now substitute for lawns – only to be overgrown with weeds within weeks of closing."

"I would suggest the Merced middle class – the real core audience for new home purchases is still being squeezed financially. Bay Area speculators and record stock price headlines does not a local economy make. With the cost of new home construction rising 35% from 10 years ago (along with that drive-thru combo meal), ask yourself how many middle class household incomes have really kept pace with inflation?"

"How many Mercedians (and UC students) are still receiving emergency food assistance? When you consider the greatest metric for Merced housing growth are 500 net new students each year – most of which subsist under financial aid programs – these students are apartment and room renters – not single family home buyers. The core basis of home purchasers (40%) used to be 'move-up' buyers – trading their first house for a larger one."

"These folks have been shell-shocked with negative equity for a decade and only now are considering a break – if their incomes and job skills give them mobility. This macro-condition is forcing people to stay in their existing homes longer – from and average of seven years to nearly 11. And if you move, where do you move to that makes better financial sense – Texas and Washington?"

"Now more than ever the Merced real estate buyer needs to be aware. Like it or not, Merced has a dubious history with real estate. Hopefully strategic planning and smart growth will prevail over duplicating the usurious past."

"Politicians, brokers and media pundits want to sell Merced’s '1% vacancy crisis' to justify more annexation, more government intervention, more building, higher prices and greater profits for a few – Crisis Capitalism at its best. Speculating on real estate, especially as a long-distance landlord is fraught with risk – witness the Great Recession."

"Don’t get emotional about buying that first (or any) home. Brokers and builders alike want you to get into that emotional confusion head-space gamblers call 'on-tilt' – where you will do anything to 'win' – and take that mortgage. Often the difference between monthly solvency and foreclosure is a few hundred dollars – lose part of your income and you are six months away from losing everything."

"Always remember debt is NOT money. Debt is a tool for certain smart people under the right circumstances, but the operative word here is 'smart.' Mortgage is an old French translation for 'death pledge' (mort gage) – think before you sign. Let us not repeat the real estate mistakes we collective made leading to the Great Recession and after."

"Eric Moore is a former real estate appraiser, banker, developer and advocate for the people of Merced. He has lived in Merced for 10 years."