Report Says Rising Foreclosures Will Drain Economic Activity
Tuesday, November 27th 2007, 7:10 am
By: News On 6
DETROIT (AP) _ Rising foreclosures will lead to billions of dollars in lost economic activity next year in the nation's major metropolitan areas, but homeowners and financial institutions have the ability to work together to contain the effects, according to a report compiled for the U.S. Conference of Mayors.
The report was released Tuesday ahead of a meeting of mayors from across the country in Detroit, where they hope to create policy recommendations to help address the nation's housing crisis.
Prepared by forecasting and consulting firm Global Insight, the report said weak residential investment, lower spending and income in the construction industry and curtailed consumer spending because of falling home values will combine to hold back the nation's economic activity.
``The wave of foreclosures that has rippled across the U.S. has already battered some of our largest financial institutions, created ghost towns of once vibrant neighborhoods _ and it's not over yet,'' the report said.
The biggest losses in economic activity are projected for some of the nation's largest metropolitan areas. New York is expected to lose $10.4 billion in economic activity in 2008, followed by Los Angeles at $8.3 billion, Dallas and Washington at $4 billion each, and Chicago at $3.9 billion.
The report estimates U.S. gross domestic product growth in 2008 will be 1.9 percent, coming in about $166 billion _ or one percentage point _ lower as a result of mortgage problems. GDP is the value of goods and services produced and is considered the best barometer of the country's economic fitness.
The report also projects property values will decline by $1.2 trillion in 2008, due in part to the foreclosure crisis, with drops in home prices across the U.S. averaging 7 percent. And it said the loss of property, sales and real estate transfer taxes will hurt local and state governments.
But homeowners, banks, holders of mortgage-backed securities and loan servicers can work together to ease the economic effects, the report said. Agreeing to new payment terms on some loans, for example, could make the difference between a family keeping a home and losing it in foreclosure.
``Such actions will help to lessen the number of foreclosures thereby avoiding the further negative effects on local housing markets and on the broader economy,'' according to the report, titled ``The Mortgage Crisis: Economic and Fiscal Implications for Metro Areas.''
The National Forum on Homeownership Preservation and Foreclosures, organized by the Conference of Mayors, includes discussions about the state of the mortgage industry, ways homeowners can avoid foreclosure, and strategies to keep foreclosed properties from dragging down the quality of life in neighborhoods.
Recommendations developed at Tuesday's forum, which is closed to the media, are to be presented at a Conference of Mayors meeting in January.
``We're coming to Detroit with a dogged determination to fight for the families in our cities, our cities and the national economy,'' said Douglas Palmer, mayor of Trenton, N.J., and president of the mayors group. ``We're optimistic that we're going to come up with models that will work.''
In addition to Palmer and Detroit Mayor Kwame Kilpatrick, who is hosting the gathering, mayors expected to attend include Jerry Abramson from Louisville, Ky.; Michael Coleman from Columbus, Ohio; Richard Kaplan of Lauderhill, Fla.; Brenda Lawrence of Southfield, Mich.; and Elaine Walker of Bowling Green, Ky.
The housing market slump has made it harder for financially strapped home buyers to sell their homes and avoid missing payments or losing their homes in foreclosure. Increasingly, many borrowers who took out adjustable-rate mortgages and other loans with monthly payments that increase after an initial period also are finding they can't afford the higher payments.
Jim Diffley, managing director of Global Insight's regional services group, wrote the report with his team and was to discuss the forecasts during the mayors' meeting. He said the goal was to provide a broad look at the effect of foreclosures, a problem mayors are keenly aware of locally.
``This is not a new issue,'' Diffley said. ``We've know about it. It's been swelling up.''