Stockton, Calif., tries digging out

STOCKTON, Calif. -- Two years ago, Sharon Halligan drove from Kentucky to California lamenting that she couldn't afford a home in the high-priced state.

Her job search brought her here, and she rented. Then the 61-year-old Halligan watched prices tank as the subprime lending mess engulfed home after home.

This month, the human resources manager moved into her $260,000 two-story home in Stockton after losing seven other bids on foreclosed homes. Thirty months ago, her new house appraised for $608,000. "Isn't it amazing?" she says, standing next to her U-Haul.

Stockton, a boom-and-bust town hit early and hard by the nation's foreclosure crisis, is digging out of the financial excesses of its past. Here, two hours from the San Francisco Bay Area, more than 7,500 homes and condominiums have been lost to foreclosure since the end of 2006, says real estate researcher MDA DataQuick. The glut has cut median home prices by more than half, spurring multiple offers on foreclosed homes and record sales.

But the city's hangover is likely to be a doozy. Its experience mirrors that of other U.S. cities devastated by foreclosures and underscores that recovery from the national mortgage and credit crisis will be painful for many people but filled with opportunity for some.

In the second quarter alone, one in 25 Stockton homes received a foreclosure notice, one of the highest rates in the nation, researcher RealtyTrac says. Some blocks have been so depopulated that even the Saturday afternoon jingle of an ice cream truck is greeted with silence. The telltale signs of homeownership gone bust? Brown lawns dying in the Central Valley heat and black lockboxes dangling from front doors.

"We used to have block parties," says Stockton homeowner Anitra Deramous, 47, a hospice nurse. "We knew everybody. It used to be all homeowners. No more. The majority are renters now."

Stockton's city budget, which draws 43% of its funds from property and sales taxes, faces an 11% shortfall, necessitating "draconian" cuts, budget analyst Joe Maestretti told The Stockton Record newspaper this month. In September, the city's unemployment rate hit 12.4% vs. 8% for the same month two years earlier, when construction and finance jobs were plentiful.

The effect of so many foreclosures has seeped into other parts of the community. School enrollment is down 7% from 2006 in a district heavily affected by foreclosures and population dips. School closures are possible, says Jason Messer, acting superintendant of the Manteca Unified School District, which serves some of Stockton's population.