Swing states still struggling after housing bust pose challenge to Obama reelection

Toby Tobin’s luxurious three-bedroom condominium speaks to an unsustainable vision of the good life that not long ago lured people in droves, transforming this once sleepy retirement community into a boomtown.

Tobin’s place at the Tidelands complex looks out on the Intracoastal Waterway, and the beach is just minutes away. In January, he picked it up in a short sale for $170,000 — less than a third of the $587,500 the original owner paid in 2005.

Similar developments in distress dot the lush landscape in Palm Coast, the hub of Flagler County. Once they fueled a virtuous cycle of rising property values, new projects, new residents and new jobs that made Flagler the fastest-growing county in the nation. Now they offer vivid evidence of an economy gone bad in ways that are proving difficult to repair.

Two years after the recession officially ended, the jobless rate in this county one hour south of Jacksonville was 13.8 percent in April — down from 14.5 percent in March but still the highest in Florida — and officials are at a loss for ways to turn things around.

Past economic troughs may have been characterized by old cities with idled assembly lines and abandoned factories. This one is defined by places such as Flagler where half-built subdivisions have little hope of ever being filled and thousands of carpenters, landscapers, mortgage brokers, furniture salespeople and interior designers thrown out of work have little hope of regaining their jobs.

“Flagler County is the poster child for what went right and what wrong in the economy,” said Tobin, a real estate consultant whose Web site GoToby.com tracks the local real estate market.

Reversing the economic decline fueled by the housing bust is a paramount test for President Obama as he campaigns for reelection. The president’s challenge is particularly pressing in potential swing states such as Florida, Nevada and Arizona, where stubborn joblessness and the pain from the collapse in real estate is most acute.

It is in these places where Obama will face pointed questions from voters who think the administration’s policies have done little to make things better.

Even beyond the housing-bust states, an already shaky economic recovery has shown troubling signs of weakening. The national unemployment rate notched up to 9.1 percent, the Labor Department reported Friday. That increase followed a string of grim economic reports of slowing auto sales, declining home prices and tighter consumer spending.

Political opponents view Obama’s record on the economy as a weak point. Former Massachusetts governor Mitt Romney officially launched his bid for the Republican presidential nomination last week with a stinging critique of the president’s economic stewardship.

“Barack Obama has failed America,” he said.

Meanwhile, the political discussion in Washington is not about stimulus but about limiting government spending, which the president’s political opponents see as the best way to mend the economy in the long term.

Obama’s economic team has defended his record by touting the success of his economic policies, including the auto industry bailout, saying they have helped unlock credit, slowly lowered unemployment and paved the way to the first increase in manufacturing jobs since 1997.

The uptick in manufacturing jobs has been instrumental in reducing Michigan’s jobless rate to 10.2 percent, down 2.9 percentage points, in the past year. Similarly, other states with more diverse economies, including Indiana, Illinois and Ohio, have experienced significant drops in joblessness over the past year.

But unraveling the economic problems in places heavily reliant on housing growth is proving more problematic.

Florida, which has been decisive in past presidential elections, was once synonymous with breakneck growth, and as recently as 2006 the state’s unemployment rate was 3.3 percent.

“We had these withering heights when housing was hot, but when it went deep-space cold it put us in this situation we are trying to climb out of,” said Sean Snaith, director of the University of Central Florida’s Institute for Economic Competitiveness. “Here, the fates of those two markets, the labor market and housing market, are tightly intertwined.”

While parts of Florida can count on tourism for a significant number of jobs, many more communities in the state have economies built around a housing market that continues to sink.

“We have had structural problems take place here,” said Donald O’Brien Jr., an insurance broker who was part owner of a Flagler County title insurance business during the boom years. “What is going to replace the jobs that were here? Our primary industry is gone.”

The title company he co-owned has gone from 24 employees to five. At its peak, it was doing as many as 400 closings a month, O’Brien said, but now business has slowed to a trickle.

The economic uncertainty is producing political volatility. Two years after voting for Obama in 2008, voters in Flagler and across Florida cast majorities for tea party Republican Rick Scott for governor, largely on his promise to create 700,000 jobs and reduce the size of state government.

So far, Scott is making good on part of his promise. The state has created 73,000 jobs since he took office in January, and the jobless rate has dipped by 1.1 points, in part because the number of Floridians looking for work has shrunk by nearly 33,000 people since January.

Meanwhile, Scott’s budget cuts, particularly to education, are causing a backlash. In one recent poll, his approval rating plunged to 29 percent.

Obama had a 51 percent approval rating in a recent statewide poll, which included a big bounce after the killing of Osama bin Laden. A month earlier, a poll found that 52 percent of Floridians disapproved of the job Obama was doing.

“Ultimately, it’s going to come down to whether the economy is showing substantial improvement by 2012,” Snaith said. “People will say, ‘Killing bin Laden is great, but if doesn’t get me a job, why am I going to vote for him?’ ”

And right now it is tough to find work in Florida, particularly in Flagler County, which in recent history has a near-perfect record of voting for candidates who are victorious in state and presidential elections.

Right now, fixing the economy is the central question for voters here.

With no port, no rail sidings and no signature industry, local political and business leaders see no obvious route to new prosperity. Officials say they want to do more to market the county — with its retro beachfront, surfable waves and canopied bike trails — as both a tourist and retirement destination. Beyond that, they are unsure what to do.

“We were on top of a crest of a wave a couple of years ago,” said Jon Netts, mayor of Palm Coast. “The higher you ride on the crest, the harder you have to fall when the tide goes out. There is no magical fix here.”

Meanwhile, declining local revenue and state budget cuts are forcing the school system, the county’s largest employer, to contemplate layoffs and a shorter school day. Median home prices have fallen by more than half since early 2006. Nearly 15 percent of the county’s homes with mortgages have been sent default notices, four times the national rate, according to CoreLogic, a mortgage research firm. And the local YMCA recently closed because of ongoing fiscal problems.

“People here turn on the TV and hear the economy is turning around and they wonder where in the world these people are they are talking about,” said Rabbi Merrill Shapiro, who heads the Flagler Area Ministerial Association. “The downward motion has slowed, but here we still find ourselves in a downward cycle.”

He added that the continued problems seem to be weighing on the president’s popularity.

“Much of the hope has evaporated,” Shapiro said. “People began on a hopeful note but they are impatient because we seem to be bumping along on the bottom.”

Political leaders agree that the continuing distress has prompted many voters to lose whatever faith they had in their elected officials.

“People have a negative view of government,” said Barbara Revels, a builder who is also a Flagler County commissioner and longtime Democratic activist. “They see a lot of tax dollars being spent and they don’t see any of it benefiting them, even if they are benefiting. The average person also does not see the impact of the president’s policies.”

Some say Flagler’s economic future may be as a bedroom community, with much slower growth going forward.

“The housing boom might have been an illusion that got people thinking that prosperity — that is, jobs — were there,” said state Sen. Anthony Hill (D), whose district includes much of Flagler County. “And that simply was not the case.”

Michael A. Fletcher is a national economics correspondent, writing about unemployment, state and municipal debt, the evolving job market and the auto industry.
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