The escalating housing market crisis will cost the D.C. metro area economy $4 billion next year asrevenue from new home construction, consumer spending and property taxes dips, according to a report that will be released today by the United States Conference of Mayors.
The report, prepared by respected economic consulting firm Global Insight, forecast the gross domestic product — the value goods and services produced by an economy — for 361 metro areas in 2008. The D.C. area GDP will grow by 2.8 percent next year, about half a percentage point less than the 3.4 percent growth the region would have seen were there no turmoil in the housing market, the report said.
“It translates into fewer jobs and less income,” said Stephen Fuller, head of the George Mason Center for Regional Analysis. “It’s not really a loss; it’s unrealized gains compared to if the economy had been running on full cylinders. But the economy can afford to slow down after overeating in ’04 and ’05. It’s cyclical — there’s the good, the bad and the ugly, and this is the ugly.”
D.C. will fare better than much of the country — Global Insight is forecasting an anemic 1.9 percent national growth rate for next year.
The housing bust has been blamed on lax lending standards that resulted in millions of borrowers with thin credit histories and little equity receiving subprime loans to buy homes during the boom years. Low, adjustable teaser rates are due to reset upward in the coming year for many of the 115,000 subprime loans that were made to D.C. area borrowers in 2005 and 2006 — a shift likely to trigger more foreclosures. Foreclosures in the D.C. area rose sixfold in the first half of 2007.
“This crisis is affecting our national economy, and we need real leadership from the federal government and our lending institutions,” Mayor Douglas Palmer, of Trenton, N.J., the president of the U.S. Conference of Mayors, told The Examiner.
Palmer and nine other mayors will use the report to craft suggestions intended to help mayors soften the impact of the housing slow down on their cities. They will present the plan at a D.C. meeting in January.
