Housing Crisis Knocks Loudly in Michigan
Saturday, March 31, 2007
DEARBORN HEIGHTS, Mich. -- Janet Laitis leaned on a chain-link fence in her front yard, dragged on a cigarette and pointed to the homes on her block that lenders have seized in just the past two weeks.
"There. There. There," said Laitis, 70, pointing across the street, down the street and then to the modest ranch house next door. "This neighborhood is deteriorating before my eyes."
Within a square mile of Laitis's house in this bedroom community outside Detroit, more than half the 96 homes on the market are foreclosed properties. The situation is not uncommon in pockets of the industrial Midwest, where a record number of people are missing their mortgage payments and losing their homes.
While lax lending policies have been blamed for the unfolding home-mortgage crisis across the country, the distress in the Midwest has been exacerbated by fundamental problems with the economy. The region has been devastated by a severe drop in manufacturing jobs as the U.S. automobile industry shrinks.
"There's a structural shift going on that's undermining the unionized, industrialized states, and Michigan is leading the way," said Donald Grimes, a senior research specialist at the University of Michigan. "When you talk to people in Michigan, you can tell from their voice and their demeanor that they are just depressed."
The housing bubble of recent years has burst and home prices are under pressure in many parts of the country. How far they fall will be determined in large measure by the strength of the economy, experts say, since job and income growth ultimately determine how much people can pay for housing. The U.S. economy is growing, but the pace of growth has slowed markedly of late.
States like Michigan and Ohio, struggling with their particular economic problems, illustrate just how bad things could get in the housing sector if the national economy falls into a recession. They are, moreover, politically important swing states; rising anger there over the housing situation could help determine the outcome of the 2008 presidential election.
Michigan has lost 305,000 jobs since 2001. Economists estimate that 40 percent of the cuts came from automakers and their suppliers, who have shed jobs each of the past six years as they have tried to regain their competitive edge.
About 65,000 people moved out of Michigan from July 2005 to July 2006, the U.S. Census Bureau reported. The migration eroded already weak demand for houses, which in turn hurt prices. In the last three months of 2006, Michigan was the only state in the nation where home prices fell, dropping 0.4 percent from the same time in 2005.
Even during the first half of the decade, when home prices jumped in most of the country, Michigan's stagnated. Dana Johnson, chief economist at Comerica Bank, said home prices typically outpaced income in most of the nation during the housing boom. But in Michigan, income plummeted and dragged housing down with it.
Cash-strapped homeowners could no longer sell their homes or refinance their way out of trouble. Many got stuck with adjustable-rate mortgages offering low teaser rates that spiked in later years. Now many borrowers are struggling.
"It's been a spillover from the weak economy to the housing sector," Johnson said. "What we've seen here is a one-state recession."