The U.S. Council of Mayors released a devastating report on
the impact on member communities of the ongoing housing market problems. The
report, prepared by Global
Insight, an economic forecasting firm, was presenting at a meeting of the
Conference attended by mortgage industry and community groups.
Global Insights predicts sharp losses for 361 metropolitan
areas throughout the United States. The impact, referred to in the report as
gross metropolitan product (GMP) is projected at $166 billion with ten metropolitan
areas accounting for $45 billion of the impact.
The report projects that the foreclosure crisis will result in 524,000 fewer
jobs being created in the next year and a potential loss of $6.6 billion in
tax revenues alone in ten states. 128 metropolitan areas will be pushed into
"sluggish" GMP growth of less than 2 percent next year and growth will be at
least one-third lower in 65 metropolitan areas and 25 percent lower in another
143 areas than would otherwise have been the case.
The largest metropolitan area, New York, will lose over $10 billion in economic
output because of the mortgage situation followed by Los Angeles ($8.3 billion),
Washington, ($4.0 billion), and Chicago (3.9 billion.)
Detroit Mayor Kwame Kilpatrick told participants "We've all seen
the headlines and read about how Wall Street is being impacted, but at the local
level, Mayors are on the frontlines everyday and our constituents are looking
to us for solutions."
Kilpatrick said that "The foreclosure crisis is no longer
just about mortgages, entire neighborhoods are being negatively affected on
several levels. This issue is now the number one economic challenge of many
The report stated that foreclosures alone will reduce home values by an additional
$519 billion in 2008, bringing the possible lost equity of homeowners to $1.2
trillion. Foreclosures will increase by at least 1.4 million in 2008, representing
housing values of $316 billion.
Home prices are projected to decline an average of 7 percent nationally, ranging
as high as 16 percent in California; home sales will continue to fall another
10 percent next year, and housing starts will continue to decline until the
second quarter of 2008 at which point the annual rate of starts will be 800,000,
a 20 percent drop from already depressed current levels.
The economy next year will grow at a rate of 1.9 percent, a full point less
than would have been the case without the mortgage crisis.
One solution proposed at the meeting is a partnership between
the Conference and the Mortgage Bankers Association to create an online database
that will allow local officials to identify the legal owners/managers of foreclosed
properties so that they can enforce health and safety codes and keep properties
from deteriorating further. The Conference also presented proposals that the
following be accomplished
- Organize ad campaigns to inform borrowers about available foreclosure
- Increase the number of available counselors;
- Protect and maintain foreclosed properties;
- Support legislation to end predatory lending;
- Reform the Federal Housing Administration so it can help more borrowers.
The Global Insight report can be seen in its entirety at www.usmayors.org
In other depressing housing news the S&P/Case-Shiller
price index for September showed that home prices fell in all 20 of the major
cities covered by the index, even those that had been holding firm before the
August sub-prime related tightening of lending standards.
Robert Shiller, co-developer of the index said "There is no real positive
news in today's data." The national home price index was down 1.7
percent in the third quarter compared to the second quarter and 4.5 percent
for the past year. The second-to-third quarter decline was the largest fall
in the 20 year history of the index.
Prices in all 20 cities in the data base declined with the formerly fast growing
(and price appreciating) cities of Miami, Phoenix, San Diego, Los Vegas, Los
Angeles, and Tampa leading the list. Eight of the 20 cities recorded their largest
year-over-year price declines ever in September.
The Case-Shiller index tracks multiple sales of the same houses over time.
The other leading study which follows this procedure, the Office of Federal
Housing Enterprise Oversight (OFHEO) same house report for the third quarter
of 2007 should also be released this week.