Sunbelt City in Grasp of Housing Undertow
Sunday, September 16, 2007
FORT MYERS, Fla.-- To understand how the housing bust may ripple through the broader American economy, look beyond the countless for-sale signs that dot this middle-class city. Instead, stop by Boater's Landing, where salespeople sit idle, hoping someone will once again want to buy a boat.
Or visit the women answering phones at the local United Way, which is dealing with a flood of aid requests from the unemployed, whose numbers have nearly doubled in a year. Or talk to the Shevlins, a real-estate agent and a carpenter, whose combined incomes dropped from $350,000 to less than $60,000 in two years.
Across this city, even businesses that have little to do with real estate are reeling. Unemployment is up, sales are down and redevelopment ambitions have been scaled back.
The Sun Belt city of Fort Myers saw real estate and construction grow to dominate its economy, accounting in recent years for nearly one out of every four jobs. That meant the housing downturn hit swiftly here, making it a kind of early and extreme indicator of what might happen to the U.S. economy as a whole.
The effect could be less dramatic in places like Washington, where government contracting and other industries may provide a cushion. What the Federal Reserve is trying to determine, as it decides Tuesday how much to cut a key interest rate, is to what degree the rest of the U.S. economy will behave like that of Fort Myers.
Economists increasingly believe the housing downturn and related problems in mortgage lending will slow the U.S. economy. Barely a month ago, most economists viewed a recession as a distant possibility. Now they think there is more than a 1-in-3 chance that one is on the way -- or even has already begun in cities like this.
"We are in a real estate recession," said Laurance Baer, manager of the Fort Myers-based Baer's Furniture chain, where sales are plummeting. "And we have an economy that's much more tied to real estate than anyone realized."
The Cape Coral-Fort Myers metropolitan area, home to about 570,000 people on the Gulf of Mexico halfway between Miami and Tampa, started bustling in the late 19th century as a winter home for northerners. Later families moved here, drawn by jobs in tourism and health care.
In recent years, national home builders poured in and investors followed, believing they could make fortunes from the run-up in real estate. Many houses tripled in value in half a decade. Owners began taking large amounts of money out of their homes, through mortgage refinancing and home-equity loans. Residents borrowed money against their homes equivalent to 15.2 percent of their disposable incomes in 2006, according to Moody's Economy.com.
New Lexuses and BMWs flew off lots. "You would have an electrician, a single guy driving around in a truck," said William P. Valenti, a longtime banker. "All of a sudden, there's so much work to go around that he hires a dozen guys, and buys three more trucks, and rents warehouse space."
The region added jobs at a 9.2 percent pace in 2004, and the jobless rate fell to 2.5 percent.
"You could make a lot of mistakes and still make money," Valenti said. "People thought it would always be that way."