Matthew Garrahan reports on the housing bust in Merced, California:
Like Stockton and Modesto, Merced is within commuting distance of San Francisco and the Bay Area, which made it appealing to investors.
Some numbers from Google Maps:
Merced, CA to San Francisco, CA
131 mi – about 2 hours 11 mins (up to 3 hours 0 mins in traffic)
Merced, CA to San Jose, CA
129 mi – about 2 hours 7 mins
Merced, CA to Palo Alto, CA
130 mi – about 2 hours 12 mins
That 130 miles (one way) was ever considered "withing commuting distance" — let alone still considered that — boggles the mind. If you did the round trip five days a week, 50 weeks a year, that’s 65,000 miles right there. At 25 miles and $4 a gallon, that’s over $10,000 in gasoline costs alone, not to mention the opportunity costs of spending well over a thousand hours a year in traffic.
Incidentally, Merced real estate broker Robin Kane deserves some kind of mixed metaphor medal for this:
“It was a great ride for a lot of investors but eventually the music stopped and someone had to pay the piper,” says Mr Kane. “What was supposed to be a liquid asset becomes a ball and chain around your neck when you owe more than the market value of the property.”
If the investors were really putting money into Merced on the assumption that their renters would commute to San Francisco, they deserve to end up upside-down. It’s actually quite hard to think of a worse investment thesis.