Foreclosures: Mayors see major hit to economy
A group representing more than 1,100 U.S. cities predicts declines in local industry and tax collections.
NEW YORK (CNNMoney.com) -- The mortgage meltdown will take a heavy toll on home prices in 2008 with declines expected to average 7 percent across the nation and lost property value of $1.2 trillion, according to the United States Conference of Mayors.
The mayors, meeting in Detroit this week, are predicting even more substantial plunges in local markets, with California home prices expected to shrink 16 percent.
The organization has representatives from more than 1,100 cities and were meeting to address problems brought on by spikes in foreclosure rates.
"Today the foreclosure crisis has the potential to break the back of our economy, as well as the backs of millions of American families, if we don't do something soon," said USCM President Douglas Palmer, Mayor of Trenton, N.J., in a written statement.
Foreclosures in 2008 will increase by at least 1.4 million, according to the mayors.
The economic impact will be substantial.
The home building industry will suffer disproportionately, with new home construction sinking to its lowest level since 1993, the organization predicts.
And, with home equity levels in steep decline, growth in consumer spending will be curtailed - the mayors expect it to increase by just 2 percent.
Municipalities will start to feel the pinch with a decline in the property tax growth rate. Some places could even experience an outright decline in collections. The housing decline will also affect state coffers, as transfer taxes plummet along with home sales volumes.
Florida, according to the mayors, could lose $589 million loss in property tax, $148 million loss in sales tax and $99 million loss in transfer tax.
Gross domestic product, the group projects, will contract by $166 billion. The heaviest burden will fall in New York, the nation's largest metro area, where the gross metropolitan product (GMP) will go down by about $10.4 billion, according to the organization.
Myrtle Beach, S.C. will suffer the largest percentage loss of GMP. The group projects a decline there of 1.7 percentage points ($243 million). Merced, Calif., is projected to lose 1.69 percentage points, or $276 million, and Madera, Calif. (a loss of 1.62% percentage points, or $145 million) will also be hard hit.