By Alexander Stillwell
December 17, 2007

U.S. housing woes will have a profound and negative effect on the economy and cities in 2008, according to a report released by the U.S. Conference of Mayors at its National Forum on Homeownership Preservation and Foreclosure on November 27 in Detroit. The report forecasts how the mortgage crisis will affect the economies of the nation’s 361 metro areas. On a national scale, the report predicts that the growth in gross domestic product (GDP) will decrease by 1 percent to a rate of 1.9 percent resulting in 524,000 fewer jobs created in 2008.

“The foreclosure crisis has the potential to break the backbone of our economy,” said Conference of Mayors President Trenton Mayor Douglas H. Palmer.

The report, prepared by the leading economic forecasting firm Global Insight, focuses on the effects of the mortgage financial crisis will have on metropolitan areas. New York City will be the hardest hit next year, with a $10.4 billion loss in economic output followed by Los Angeles with a loss of $8.3 billion, Dallas with $4.0 billion, Washington (DC) with $4 billion and Chicago with a $3.9 billion loss. These figures are measured in Gross Metropolitan Product (GMP). Similar to Gross Domestic Product, GMP measures the amount a metropolitan area produces.

Host city Detroit Mayor Kwame M. Kilpatrick stated that, “American cities and the American economy will be significantly impacted by this mortgage crisis. Today we are calling on the banking industry and Wall Street to act in their best interest by modifying loans and mitigating the negative effects of foreclosures on our communities.”

Myrtle Beach (SC) is forecasted to be hit the worst with the greatest percentage with 1.7 percent drop in real GMP growth. Merced and Madera (CA) follow with both cities forecasted to lose at least 1.62 percent in 2008.

The growth of the 128 of the 361 metro areas forecasts anemic real GMP growth of less than two percent in 2008. Growth is cut by more than a third in 65 metro areas and by more than a quarter in 143 areas.

The report forecasts that homeowners will see an aggregate property value decline of $1.2 trillion next year. This is a result of a two-fold affect. The financially contracting housing market will lose $676 billion dollars due to a large supply of houses on the market. The second part, $519 billion, is due to the negative effects foreclosures will have on housing prices in neighborhoods.

Despite being a conservative forecast, 1.4 million homes are slated to go into foreclosure. Industry experts estimate that each neighboring house will lose $3,000 to $5,000 in value when a house enters foreclosure.

Mayors can also expect lost tax revenues from decreased housing prices. Although the report did not publish a forecasted number for each individual metro area, ten select states were chosen to represent the effect the mortgage crisis will have on local and state governments revenues. California could potentially lose $2,966 billion in tax revenue in 2008; Massachusetts could potentially lose $233 billion.

Home prices will decrease an average of 7 percent in 2008. Californian housing prices, which will be particularly hard hit, are projected to drop 16 percent.

‘’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. Consumer spending would drop 2 percent with consumers spending $70 billion less. This could translate into the auto industry selling almost a million fewer cars than in 2006 and 100,000 fewer U.S. jobs added per month.

The report can be accessed at usmayors.org.