A House Unsold, the Dream Dims
With the boom now a memory, a Denver neighborhood spirals downward
In pursuing the American dream, Hector Garcia figured he was doing everything right. A hardworking welder with two jobs and a new family, he bought his first house 4
Montbello's older, brick ranch-style homes were considered a good buy. So Garcia took out a 30-year, fixed-rate mortgage at 6.5 percent interest, bought a three-bedroom home for $207,000, and began fixing it up.
With interest rates falling and the nation's housing boom in full swing, growing numbers of fellow Latinos bought into the historically African-American district. Many took advantage of new adjustable-rate loans that got them in with no money down and low initial payments. "They thought this was their dream," Denver City Council President Michael Hancock says.
But two years ago, interest rates reversed course, sales slowed, and developers began discounting the homes they'd built nearby. Buyers with adjustable-rate loans saw their monthly payments rise. Some fell behind and were forced to sell or face foreclosure.
The story is similar in many not-quite-up-and-coming neighborhoods around the country. Mortgage delinquency rates have steadily climbed since 2005, exacerbated by a growing array of exotic loans and loose lending practices. That's especially true in the subprime market, where many first-time buyers squeaked in with no downpayment. That gave them little reason to stick it out when they fell behind.
"Foreclosures spiked last year, and now we're hitting a very high rate," says Celia Chen, housing economist at Moody's Economy.com, which expects the rate of foreclosures to increase by nearly 20 percent this year to more than 1 in about 200 homes. And if things get worse, "the [rise in] foreclosures is going to put some downward pressure on prices, which is problematic in some neighborhoods."
The wall. The worst result is the sort of vicious cycle of "for sale" signs, foreclosures, then more "for sale" signs that is all but devastating Montbello. Bank-owned properties now represent more than 80 percent of all homes on the market there, putting even seemingly stable homeowners like Garcia up against a financial wall.
"I just can't take it anymore," he says of his street's overgrown yards, abandoned houses, and declining property values. "I put so much into this house and this community, but I don't have no equity."
With more than 2,500 square feet, new kitchen cabinets, tile, and a recently finished basement apartment, Garcia's house two years ago "would have gone for $210,000, maybe more," says David Cabrera, the real-estate agent whom Garcia hired last fall to sell the home, now priced at $195,500. "But nobody's buying now with all the foreclosures."
The situation is hurting longtime residents, too, who have counted on home equity for their futures. "For a lot of older folks, this is their retirement," says the City Council's Hancock.
Last month Hancock created Denver's Foreclosure Task Force, which has published a study identifying at-risk neighborhoods and a list of ideas to help turn things around. "Even if we can maintain the outside of the [foreclosed] homes until they're sold, it would help," he says. Hancock is also considering a "second chance" program in which an investor group would buy foreclosed properties in bulk, rent them back, and eventually sell them to those who have been foreclosed on.
Some worry, however, that such a plan would only set folks up for another fall. "Homeownership has been sold to many people as the equivalent of a Powerball ticket," says Jacky Morales-Ferrand, who directs the city's housing development division. "But the truth is that not everyone can afford a home when the roof needs to be fixed or the plumbing breaks. Most of us won't win that Powerball ticket."
Some expect things to turn around eventually. "Real estate goes in cycles," says real-estate agent Polly Howard. "Those able to stick it out for two or three more years won't lose equity."
That's not likely to be soon enough for Garcia, who has yet to receive an offer. "I feel bad," he says. "Everyone thinks they want to get a house to get money for the family. But I need to have a life, too."
This story appears in the March 5, 2007 print edition of U.S. News & World Report.
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