This one comes to us via Sam Seder:
An escalating mortgage crisis will push another 1.4 million U.S. homes into foreclosure and drive nationwide property values lower by 7 percent next year, according to a report released on Tuesday by a group representing city mayors.
The report, released by the U.S. Conference of Mayors, predicts states and cities will be left scrambling to make up for lost property tax revenue, particularly in markets such as California and Florida where home values had soared.
[snip]
"Not that long ago economists said housing was the backbone of our economy," Trenton, New Jersey Mayor Douglas Palmer said in a statement.
"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 Palmer, a Democrat, who serves as president of the mayors group.
The Global Insight report forecast U.S. homeowners would see property values fall by $1.2 trillion in 2008, with almost half of those overall losses coming in California.
California property values are expected to drop by 16 percent in 2008, the report said, costing the most populous state almost $3 billion in property taxes.
The report said the weakening U.S. property market would have knocked some $676 billion from home values, but another $519 billion in losses could be tied directly to the financial problems facing borrowers unable to meet escalating monthly mortgage payments.
During the property boom of 2004 and 2005, thousands of borrowers with riskier, or subprime, credit took out adjustable rate mortgages that had very low "teaser" interest rates for the initial two years before resetting at much higher rates.
As those interest rates have started to reset, home foreclosure rates have jumped, especially in once-hot real estate markets like Nevada, California and Florida.
In Detroit, home to the depressed U.S. auto industry and the venue of Tuesday's conference, residential foreclosure rates have been running at almost five times the national average.
That has further depressed property values in an already poverty-torn city that has lost more than half its population in the past 30 years, leaving whole blocks abandoned.
As similar problems spread, the report forecast that the U.S. economy would grow by just 1.9 percent in 2008 with hiring and consumer spending both curtailed.
This is, quite simply, a bloodbath. And if you, like me, bought at the bottom of the market and refinanced your way into a below 5% fixed rate during the interest rate cut years, that's cold comfort. It isn't so much the evaporation of paper gains, for those gains are illusory until and unless you sell anyway. It's that when you have a tsunami of human misery the likes of which we're going to see as states and towns are starved of revenue and over a million people will lose not just their homes, but the only asset they have, it's going to be too horrible for even the mildest form of schadenfreude.
We are in for some very scary times indeed, folks.
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