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Report Predicts Mortgage Crisis Effects

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By DAVID RUNK, The Associated Press

Published: November 28, 2007

DETROIT - 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.

Locally, the Tampa-St. Petersburg-Clearwater metro area is expected to lose nearly $1.4 billion in economic activity next year because of the mortgage crisis. Global Insight estimates that the Bay area gross metropolitan product will grow by 3 percent next year, whereas it may have increased 3.9 percent without the crisis.

Also affected greatly will be the Sarasota-Bradenton-Venice area, which is expected to lose $646 million. Global Insight estimates it will show GMP growth of about 2.9 percent next year, rather than the 4.4-percent growth it might have recorded without the mortgage mess.

Statewide, Florida will lose an estimated $589 million in property tax revenue, $148 million in sales taxes and $99 million in property transfer taxes because of the crisis.

The report estimates that U.S. gross domestic product growth in 2008 will be 1.9 percent, coming in about $166 billion - or 1 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 said homeowners, banks, holders of mortgage-backed securities and loan servicers can work together to ease the economic effects. 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.

Tribune reporter Michael Sasso contributed to this report.

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