Local economy expected to suffer from foreclosures

The foreclosure forecast for the Winston-Salem metropolitan area is grim for 2008.
The local economy is projected to take a $72 million hit related to foreclosures, according to a national forecast released Tuesday at the U.S. Conference of Mayors in Detroit. Allen Joines, the mayor of Winston-Salem, was not at the conference.

However, the effect on Forsyth, Davie, Stokes and Yadkin counties is expected to be significantly less than the state's other major metropolitan areas.
Global Insight, a research company based in Lexington, Mass., projected that foreclosures would have a $1.2 billion effect on the Charlotte-Gastonia-Concord metro area, along with $590 million on Raleigh-Cary and $450 million on Greensboro-High Point.

The forecasts are based on each region's gross metropolitan product, a data source presented in September by the U.S. Bureau of Economic Analysis. The data applies the same criteria - the market value of goods and services produced - used to measure the gross domestic product of countries.

"The forecasts from the report are probably a little on the pessimistic side, but not by all that much," Mark Vitner, a senior economist at Wachovia Securities, said yesterday.

"What stood out to me about the report is that it didn't really address how many of these projected foreclosures for 2008 will be lost by homeowners, and how many by investors who bought homes to flip for a quick profit. My guess is that you will see more foreclosures from investors than homeowners."

Two factors have helped the state's metro areas avoid a large housing collapse, said Michael Walden, an economics professor at N.C. State University.

"The regions didn't have the big run-ups in housing prices that created speculation and led to price bubbles" in overheated markets in California, Florida and Georgia, Walden said. "The regions have had physical room to expand supply - build more homes - which also moderated the price increases.

"Plus, for the Winston-Salem region, its recent economic challenges have led to more modest income gains, which also have served as a restraint on demand and have kept a lid on price jumps."

The Triad housing market has struggled recently to maintain even those modest price increases.

On Tuesday, the N.C. Association of Realtors reported that existing-home sales in the Triad dropped 11 percent to 1,239 in October compared with a year ago.

The average sales price fell 7 percent to $172,031.

The Global Insight report projected that 1.4 million homes will be foreclosed nationwide in 2008.

The domino effect will be widespread, the report said. The nation's GDP is expected to be 1 percent lower in 2008 at 1.9 percent, which translates into a $166 billion decline. There will be 524,000 fewer jobs created next year, and property values nationwide will decline by $1.2 trillion.

The report found that Myrtle Beach, S.C., is likely to take the biggest percentage loss in gross metropolitan product, declining 1.7 percent, or $243 million.

The crisis was driven by several factors, the report found: expectations that housing prices would continue to appreciate; consumers being sold mortgages based on adjustable interest rates or alternative products they eventually could not afford; fear of first-time home buyers missing out on equity gains; and existing homeowners trading up in home value or buying second or vacation homes.

"Then the perfect storm occurred," the report said. "Home-price appreciation ground to a halt, and home sales plummeted.

"This happened just as the ARM rate resets were beginning in large numbers, dooming the finances of millions of buyers. Delinquencies and foreclosures began to mount.

The inventory of new and existing homes for sale piled up, putting further downward pressure on prices, and limiting the ability to sell of those who needed to.

"The final straw occurred in the summer of 2007, as institutional holders of mortgage-backed securities realized the risk in their portfolios," the report said. "Credit dried up, for refinancing, for subprime buyers and also for jumbo mortgages."

Even though the report said that the real-estate crisis in 2007 and 2008 "will be one for the record books," the researchers said that the forecast is not completely bleak.

"In the end, the economy will not come off the rails," the report said.

"The negative economic impacts cited in this report could also be significantly contained if mortgage holders and loan servicers could agree to new payment terms with families who have the ability to pay, but were placed in inappropriate mortgage products."

Foreclosure tremors

Winston-Salem is expected to be hurt less by housing foreclosures in 2008 than most of the state's metropolitan regions. The data is measured in gross metropolitan product:

Metropolitan area Loss in real Loss of GMP

GMP growth

Asheville 0.3 percent $33.7 million

Burlington 0.5 percent $33.4 million

Charlotte-Gastonia- 1.0 percent $1.2 billion

Concord

Durham 0.3 percent $97.6 million

Fayetteville 0.4 percent $115 million

Greensboro-High Point 0.9 percent $449.6 million

Hickory-Lenoir- 0.4 percent $56.6 million

Morganton

Raleigh-Cary 0.8 percent $590.5 million

Winston-Salem 0.3 percent $72 million