Property values in U.S. cities are expected to tumble by $1.46 trillion in 2008 due to the housing downturn and subprime mortgage crisis that has pushed the U.S. economy to the brink of recession, American mayors were told Friday.
Cities, where some 85 percent of the 300 million Americans live, face weak economic growth and tepid job markets from the housing crisis and rising fuel and food prices, according to the study by private analysts Global Insight for the U.S. Conference of Mayors meeting in Miami.
Just eight months ago, researchers predicted property values would shrink by $1.2 trillion this year, the study said.
"Metro areas are expected to suffer a $1.46-trillion decline in property values in 2008," the study said. "The increased loss is a result of even greater deterioration in home markets and prices than anticipated."
The decline is the equivalent of $21,277 per home, the study said.
Facing eroding property values, coupled with high gas prices and a weak job market, U.S. cities were unlikely to see an economic upturn until mid to late 2009, said David Iaia, an official with Global Insight.
"Housing will bottom out at the end of this year and that will contribute to growth in 2009," he said.
Cities averaged 2.8 percent economic growth from 2005-07 but that figure was expected to drop to 1.4 percent this year and rise a shade to 1.5 percent in 2009, the study found.
Ninety-three percent of metropolitan areas are expected to see declines in property values, the study said.
Los Angeles will suffer the biggest drop — $203 billion— followed by Washington, San Francisco and Riverside in California.
Only 24 of 360 metropolitan areas were expected to see growth, led by Charlotte and Raleigh, North Carolina.
The study said some U.S. cities faced a "triple-whammy"—lower property taxes and reduced transfer taxes on the sale of properties, both linked to the housing crisis, and slowing sales tax receipts due to the economic slowdown.
Mayors and city officials said they had growing concerns about tens of thousands of homes across the United States that were being abandoned by homeowners unable to make onerous mortgage payments.
Some properties are being vandalized by departing owners, others taken over by squatters and some are not properly maintained, damaging surrounding home values.
"This is a very serious problem," said Richard Kaplan, the mayor of Lauderhill, Florida. "Your next-door neighbor could be the one that's vacant." The Mortgage Bankers Association said it did not have good nationwide statistics on the number of homes abandoned during the housing crisis.
But Robert Klein, the chief executive of Safeguard Properties, an Ohio property management company, said his firm alone inspected 600,000 homes last month, and found 23 percent, or 138,000, abandoned.
Their condition ranged from "livable, move-in condition to totally destroyed," he said.
He pleaded with mayors to come up with a uniform, national plan to deal with the growing crisis of abandoned properties instead of forcing lenders to contend with different laws in every city.
"There's no way a mortgage servicer can deal with 5,000 different ordinances. We need a national consensus on vacant properties," he said. "If these properties are not maintained ... they will not be able to be sold."
The Global Insight study said foreclosure activity was expected to rise to 2.2 million homes, representing a property value of $488.4 billion, in 2008.
"The real estate-owned inventory (property in possession of lenders after foreclosure) is only going to increase in the next 18 months," said Marietta Rodriguez, director of homeownership programs for NeighborWorks America, a network of community development organizations.