Elk Grove,California's Recession

The Sacramento Bee reports:

Elk Grove, already mired in an economic slump, may be at the forefront of what's coming to the entire Sacramento region.

Already home foreclosures there are up fivefold. Unemployment has climbed. Vacancies at small strip malls are three times the regionwide average, and Laguna Ridge – a big new master-planned development – is largely a ghost town of unsold homes and vacant lots.

Shards of similar economic news have started to appear elsewhere in the Sacramento region: Vacancies are increasing in South Placer's office parks; the city of Sacramento has instituted its first-ever layoffs; and the state, facing a $14.5 billion deficit, has canceled a huge office project near the Capitol.

Whether Elk Grove's economic downturn signals a recession is hard to determine, as is what it may foreshadow elsewhere. But its 136,000 residents have felt the shift, particularly in real estate.

And with the region's unemployment rate rising, homeowners aren't the only people struggling.

"We're doing our best to stay open," said Chris Correa, co-owner of a long-standing brewpub called Elk Grove Brewery Restaurant.

"There used to be a housing boom, a lot of new people, a lot of new money moving in here. Now people's houses are losing equity. … People are incurring debt and they're just not coming out to restaurants."

Elk Grove may not be typical. Some real estate experts say it's taking a worse beating than other communities in the area. And no one argues that its long-term future is anything but bright. But its experience with an economy that became overly dependent on real estate is instructive nevertheless.

During the boom, nearly half the new jobs created in the Sacramento area and the rest of California were tied to the housing bubble.

Specific job figures for Elk Grove aren't available, but it was clear that a healthy real estate market – and all that went with it – became the city's main economic fuel.

The flood of Bay Area refugees to Elk Grove drove housing prices skyward and generated a mad rush to build homes, schools and shopping centers. Taxable retail sales nearly doubled between 2002 and 2005, to $1.53 billion, according to the state Board of Equalization. For a while, Elk Grove was among the fastest-growing cities in California, and layoffs at the Apple plant and the closure of the JVC compact-disc factory couldn't spoil the party.

The end of the boom changed all that. It drove the city's unemployment rate up to 4.7 percent last year, from 3.6 percent a year earlier, according to rough estimates by the state Employment Development Department.

Moreover, it left scores of vacancies in strip malls, wiped out much of the home equity "wealth effect" and drove many homeowners into foreclosure or to the brink. Banks took back 171 homes in Elk Grove in December, five times as many as a year earlier, according to Foreclosures.com, a Fair Oaks-based Web site.

Some politicians are going to have to get used of flat or declining real estate prices.