Would You Commute Daily To El Centro?

— El Centro and Yuma are cooling off. No, not the blistering summer heat. That hasn't changed. The economies of those two small cities between San Diego and Phoenix have been surging the past several years, partly because the federal government is creating jobs by beefing up border security. President Bush's visit to Yuma last week may lead to even more border jobs.

But even if new jobs come, these cities' real estate booms are slowing sharply, and some San Diego housing speculators who rolled the dice there could get caught in a down spiral.

In its May issue, Inc. magazine lists "Boomtowns '06: Hottest Small Cities." Yuma, Arizona, is number one. Gushes the publication, "Once a small farming community, this border town is one of the nation's fastest-growing areas, with a burgeoning Latino population and a steady stream of Californians in search of a lower cost of living. Surging trade with Mexico has sparked strong growth in services and transportation."

Fifteenth on Inc.'s list is El Centro. Says the magazine, "Located in the state's southeast corner, El Centro has been riding the same global trade wave as other U.S. border towns. It also owes its growth to the Department of Homeland Security, which has boosted its hiring of security and customs personnel to police the busy border."

In both Yuma and El Centro, higher interest rates are squeezing folks who bought homes they couldn't afford with adjustable-rate and exotic mortgages. With interest rates rising, those who took out adjustable-rate loans are having to make higher monthly payments. The worst kind of exotic mortgage is the one resulting in negative amortization, in which buyers pay less interest than is due; the unpaid part is added to the principal, so the size of the loan keeps going up.

Such loans are whacking San Diego, where prices of one-third of the homes on the market have been lowered, according to ZipRealty. Yuma and El Centro have not sunk that far. Yet. But as the bubble deflates in San Diego and other overstretched markets, the pain will flow to nearby communities and perhaps the rest of the nation.

When you drive by Yuma, you see a proliferation of tiny structures that appear to be king-size privies. Actually, they are 400- to 500-square-foot homes, called "park models." For several decades, Yuma has been a winter home for so-called snowbirds who bring their recreational vehicles down from Canada, Idaho, and other cold climes and park them for the season. Sometimes they will buy or lease a park model to supplement their rec vehicle. But with the price of gasoline escalating, more and more snowbirds are getting rid of their gas guzzlers and occupying one of those 400-square-foot homes for four or five winter months.

The park models sell for $90,000 to $100,000. Often, they are located around a golf course. Some people live in them all year. The park models, along with manufactured homes about twice the size, constitute roughly 20 percent of the Yuma home market, thus driving down median real estate prices. The median price for all kinds of single-family homes is just below $160,000 -- up stoutly from $125,000 a year ago but now stalling out, according to the Yuma Association of Realtors.

You can see the appeal for retired San Diegans. Sell your house for more than $500,000 (the San Diego median). Buy a park model for $90,000 or a larger home for $200,000 and pocket the difference -- perhaps buying another home cheap in Utah, Wyoming, or New Mexico for the spring, summer, and fall seasons.

"In an ordinary year, 70,000 snowbirds come, although it has peaked and dropped a little bit," says Ken Rosevear, executive director of the Yuma County Chamber of Commerce. A big attraction is that prices of many goods are lower in Yuma. For example, "People go to Mexico for prescription drugs, dental care, and vision care," he says.

The economy is supported by agriculture, tourism (mainly snowbirds), two military bases, border activity, and some small manufacturers. Between 1990 and 2000, the county's population doubled to 185,000 and the city's doubled to 85,000. That doesn't include snowbirds. The city's population has since risen to 93,000.

Once, people had to drive through Yuma to get to Phoenix. Then Interstate 8 went around the city. Yuma survived that blow. For many years, the Padres trained in Yuma, attracting visitors. "Then Peoria [Arizona] built them a brand-new stadium," says Rosevear. "We couldn't build them what they were looking for." (Sound familiar?) Yuma lost the Padres in 1994 but recovered.

In the past several years, real estate has boomed, but "prices are now peaking," says Dennis Krill, president of the Yuma Association of Realtors. "Investors have backed off. They were taking equity out of their homes in California, paying cash for homes here, and also getting loans," expecting fat profits. "Some were flippers" expecting to get rich in a few months. But now the rents they are receiving aren't high enough to cover their mortgages, so they are selling the homes at a discount, and this is depressing prices.

The same is happening in El Centro, farther west. Largely because of legal migration, the population has been surging. Over the past year, Imperial County was the third-fastest-growing county in the state, at 3.1 percent. The population of El Centro, the county's biggest city at 41,000, was up 2.5 percent.

However, El Centro is still poor. Household income is only about three-fourths the state's average, and unemployment gets above 30 percent in the summer. Home construction lagged population growth for a long time, but beginning a few years ago, construction began catching up, says Kimberly Collins, director of the California Center for Border and Regional Economic Studies at San Diego State University-Imperial Valley Campus.

The median home value surged 30 percent in the past year to $285,000. (Unlike in Yuma, the median is not dragged down by a slew of park models.) "But there is a tremendous slowdown now," says Judy Tagg, president of the Imperial Valley Board of Realtors. "We've seen a 5 to 7 percent decline in pricing, and it now takes 60 to 90 days to sell a home; a year ago it was about 10 days."

People fled rental units to snap up creative mortgages to buy homes that were beyond their financial reach. "The rental inventory went up," says Tagg. Now, as in Yuma, speculators who bought homes, hoping to flip them, find that the rents they get aren't enough to service their mortgages. Many are in trouble, but Tagg hasn't seen a lot of defaults yet.

Some builders report that 10 percent of homebuyers have been commuting to San Diego, says Collins. That's a long commute -- one and a half hours to East County. And in the winter, snow can stymie traffic. Two years ago, the San Diego Association of Governments found that 400 people commuted from Imperial to San Diego County for work, while 800 commuted the other direction. Higher gas prices should crimp that activity.

My guess is that a lot of San Diego-based would-be flippers bought new homes in Imperial County and tried to convince potential buyers that the commute to San Diego would pay off. As Collins points out, people put up with road rage every day driving to Temecula -- why not have an easier (and far more beautiful) commute to El Centro? But until gas prices come down, that argument is less compelling.

"We have not really increased our capacity to host snowbirds," says Cathy Kennerson, chief executive of the El Centro Chamber of Commerce and Visitors Bureau. It might not be a bad idea to go in that direction. Meanwhile, both Yuma and El Centro get a boost from the Imperial Sand Dunes, where off-road vehicles race about over 118,000 acres, enraging environmentalists. Both El Centro's Kennerson and Yuma's Rosevear boast that the dunes attract 200,000 enthusiasts on Thanksgiving weekend.

Some buy homes so they can despoil the environment all year. They may do to themselves what they have done to endangered species.

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