Bakersfield's housing boom was absurd in retrospect — giddy and wild, to be sure, but also unsustainable and, in a few cases, criminal.

It was the days of "liar loans," when virtually everyone could qualify to buy a home, anyone could sell one and mortgage lenders were willing to finance it all, no matter how foolish.

Local real estate broker and investor Frank St. Clair remembers the prevailing insanity. Realtors tried to bribe him to reject competing purchase offers. He would get 10 bids on one home in four days. Properties that had fetched $85,000 in 2001 were going for $265,000 four years later.

"It was a wild-ride roller coaster," said the owner of Bakersfield's St. Clair Realty.

Then came the crash. Many a local fortune was wiped away, and it became clear certain local real estate moguls were headed for jail. Even now, a full decade after the collapse of New York financial services firm Lehman Brothers heralded the beginning of a crisis that shook the global financial system, Bakersfield's home market has yet to recover.

The boom-turned-bust has changed the city, just as it has the nation as a whole. Thousands of Bakersfield residents lost their homes, and many are still left renting from investors who, cash in hand, scooped up foreclosed properties for sometimes 25 cents on the dollar during the depth of the recession.

STABILITY AT LAST

Through it all, local industry observers say, Bakersfield's housing market has finally been able to find its footing. Home prices have not reached their pre-recession peak the way the country as a whole has, but there is a sense the market reflects the local economy instead of relying on propped-up home appraisals, foolhardy lending practices and outright fraud.

Real estate agent Sheeza Gordon said she's glad. Although she was among those who lost money during the bust, it seems to her conditions are now sensible and steady: People who shouldn't qualify for a mortgage generally don't, she said, and homes only sell if they are supported by sound fundamentals.

"Nobody wants to ride that ride and watch it bottom out," she said. "I think people would rather have a realistic (rate of home price) appreciation that they can feel good about and count on, and not just have unsustainable (prices) and the first-time buyers can't" find an affordable home.

Bakersfield was, for a time before the bust, one of the fastest-appreciating home markets in the country. Like Las Vegas, Phoenix and Miami, the city attracted investment from outsiders anxious to buy, hold for a short time then sell at a considerable profit.

In the four years leading up to the peak of Bakersfield's housing boom in 2006, the median price of an existing, single-family home in the city climbed 141 percent to reach a high of $289,000.

REAL ESTATE FRAUD

Among the biggest local beneficiaries of that rise was Bakersfield's infamous Crisp & Cole Real Estate. Led by high-flying entrepreneur David Crisp and his business partner, broker Carlyle "Carl" Cole, the firm became recognizable around town for their flashy cars, imported suits and bodyguards.

But it was all a house of cards, as federal prosecutors later proved. In an illegal arrangement called a "straw buyer," the firm would pay an associate or family member to buy a property using falsified mortgage documents, then sell it to someone else connected to the company. The profit came from price increases derived from bogus home appraisals.

When finally the good times ended between 2006 and 2007, Crisp & Cole was unable to keep up payments on properties it was unable to unload at sufficiently high prices. The firm collapsed, and within a few years, its owners and many former employees were behind bars.

Crisp and Cole weren't the only ones using straw buyers to make a fortune in Bakersfield real estate. Developers Eliseo Jara Jr. and Sergio Jara, owners of Bakersfield Jara Brothers Investments, also employed the tactic, and ended up in prison as a result.

The man who blew the whistle on Crisp & Cole, appraiser Gary Crabtree, said there were others pulling off the same fraud locally. More of them would have been caught if federal law enforcement agencies had the resources to fully investigate and follow up, he said.

LAX LENDING STANDARDS

But a bigger factor in Bakersfield's fast rise and inevitable fall — a problem seen across the country — was faulty lending practices. People who never should have qualified for a home were getting in way over their heads. Banks and other investors were left holding the bag when homebuyers couldn't cover mortgage payments that had seemed affordable only because of questionable arrangements such as adjustable interest rates, no-money-down purchases and balloon payments.

Crabtree recalled a case in which a cook at the Bakersfield Outback Steakhouse, making $23,000 per year and acting as a straw buyer for a fee of $7,000, got a roughly $280,000 mortgage. He was able to do so because he claimed to be making $160,000 per year as a self-employed caterer.

"Those are the kind of things that were happening back in those days," Crabtree said. "It was all because of loose-goosey loan underwriting."

THE BUST

The consequences were devastating. Bakersfield's median home price went from $289,000 in 2006 to $129,900 in 2009. That's a 55 percent plunge in three years.

And the home market still hasn't fully bounced back: Despite rising gradually during the recession, the city's median came in at $232,000 in 2017, still about 20 percent below the peak.

Bakersfield home loan foreclosures began their painful ascent in 2005. There were 280 trustee's sales that year; three years later the annual total escalated to 8,560, a 30-fold increase in three years. They have since fallen off, albeit less steeply, settling to 943 foreclosures in 2017.

Federal data show Kern's housing boom differed significantly from that of the nation as a whole, in that the county's home prices sank much deeper and have had a harder time recovering.

While Kern home prices fell 53 percent from their peak in the third quarter of 2006, home prices around the country declined only 21 percent starting in the first quarter of 2007. The nation's home prices overall have since exceeded their pre-recession peak by almost 16 percent, while Kern County has an additional 22 percent to go for a full rebound.

A LONG RECOVERY

What recovery has taken place benefited from a number of influences, not the least of which was action by the federal government.

In addition to slashing interest rates, spending $1.5 trillion to stimulate the economy and buying up Treasury notes and mortgage bonds, the government overhauled banking regulations. A 2010 law known as Dodd-Frank raised lending standards and gave regulators new powers, including the ability to shut down banks without the need to bail them out.

Locally, a rush of investors from in and outside the area stepped up with all-cash home purchases during the recession, and promptly rented out previously foreclosed homes. Although would-be homebuyers were largely squeezed out of the market for a time, the influx has bolstered home prices.

"That has helped us recover," St. Clair said.

THINNING THE RANKS

Another result of the bust was a big decline in the number of people working in real estate in Bakersfield. Gordon, one of the city's most productive sales agents, said the firm she worked at, Touchstone Real Estate Group, employed about 450 Realtors during the boom. After home prices crashed, the firm's payroll fell below 100, she said.

Some of that was bound to happen, she said, as agents with little aptitude discovered the profession was harder than they bargained for.

"It was only for a couple of years that it was lucrative for everybody," said Gordon, now an agent at Watson Realty ERA in Bakersfield. It was during that period that "any monkey could have sold a house ... . People were just literally clueless."

She and others see Bakersfield's gradually improving economy — higher oil prices have spurred local hiring, Amazon plans to build a large warehouse next to Meadows Field airport and major real estate developments appear to be nearing construction — as driving demand for housing. They say that momentum will build a strong foundation for home prices going forward.

Joe Newton, a former real estate professor at Bakersfield College who now handles complaints as ombudsman for the Bakersfield Association of Realtors, said employment gains are sure to encourage consumer spending on homes.

What's more, the local housing market is more affordable than most, which is itself a reason to celebrate.

"Everbody ought to remain optimistic about it, especially in the Kern County and Bakersfield area," he said. "We've got a wonderful market for real estate."

John Cox can be reached at 661-395-7404. Follow him on Twitter: @TheThirdGraf.

(4) comments

Federalist

Why would we be using the 2006 fraudulent housing prices as a benchmark for recovery? Didn't we learn how those prices were unsustainable? Get ready for another one...

diflo

For what my home is worth, I can't even begin to afford homes in better areas of Ca. to escape the air pollution and heat.

BanditIvy

As usual, Gary Crabtree is right on. Many big named companies did the same thing Crisp and Cole did. There simply wasn't enough investigators to go around. Who knows, perhaps if Crisp & Cole hadn't drawn attention to themselves, they may have gotten away with it like many others. I remember a lot of big name companies were telling their customers not to worry about the big price increases as that was simply a market correction. Most of us smaller guys knew they were lying just to make a buck. I told my clients it was a bubble and will burst. It was the 3rd one I've seen so I recognize it. I was up front. Told clients absolutely do not get an adjustable rate mortgage and make sure you really like the home as you may end up being upside down.

Inconvenient Truth

Are you warning your clients about the bubble we’re in NOW?

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