By Neil Irwin and David Cho
Washington Post Staff Writers
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."
William Coleman, 50, who was a senior superintendent at a home builder, learned how quickly things could change. He lost his job in January. Now he's pouring concrete in a parking lot. His income dropped from $100,000 to $60,000. But Coleman says he feels lucky. His new employer had 250 workers last year. Now it has 30.
"I had to take the only job that was available," he said. "Everybody's looking for work."
Permits for new homes in the first seven months of 2007 are down 70 percent from 2005, with housing prices sliding back to their 2002 levels.
The job market followed. The unemployment rate was up to 4.7 percent in July. But the real picture may be worse than the numbers indicate, says Michael Reitmann of the Building Industry Association. The jobless rate does not account for the workers, many of them immigrants who have simply moved away as the economy has softened.
For the past two years, Kelly Fuelcher and three colleagues in the United Way office have answered 50 or 60 phone calls a day from people needing job training, help with bills or other assistance.
Since the beginning of summer, the number of calls has nearly doubled, to a hundred or so per day -- the most ever, except after hurricanes.
When the construction industry was first slowing, much of the demand for social services came from Latino immigrants, laborers who found themselves without an income. Lately, however, "it's everybody," Fuelcher said. "It runs the gamut of economic status."
That has made hiring easy at some stores. When times were good, Baer's Furniture could not find enough staffers. When the retailer recently posted openings for two sales people, it got 170 applicants.
There are signs that these problems are seeping into many regions of the country. Job growth was halted in August as the nation shed 4,000 jobs, stunning economists who had not thought that the housing bust would so dramatically affect hiring.
The weak job market and slumping wages in Fort Myers are triggering a worrisome drop-off in consumer spending, which nationally accounts for 70 percent of the economy.
During the boom year of 2005, the take-home pay of Dawn Shevlin's family reached $350,000. That year, she and her husband bought two pickup trucks and a boat, and started building a custom home on a handsome beachfront lot.
This year, Shevlin, a real estate agent, sold hardly any homes. Her husband's carpentry business is "dead in the water." They have been unable to sell a second home they own.
Every night, she said, "we fight over every dollar." With their income below $60,000, they have more bills than they can pay and have ruled out any big purchases. Even dinner at a modest restaurant is too great an extravagance.
Shevlin says she is trying to get a steady job as an airport security officer, but the competition is fierce. "I'm 45 years old and I feel like I should be going to a higher place in my career," she said. "Instead I'm taking 20 steps back."
With families like the Shevlins curbing their spending, retailers are suffering.
Boat sales have dropped 30 to 40 percent, estimated Larry Jones, who moved from Warrenton three years ago to manage Boater's Landing, a chain that sells boats from $10,000 to $1 million. Jones is concerned the most about upper middle-class buyers, who have closed their wallets. His dealership in nearby Naples, which is home to some of the wealthiest people in Southwest Florida, is suffering more than any other in the chain.
"No matter how favorable the financing or no matter how cheap the price gets, it's not bringing the buyer back," Jones said.
These ripple effects worry economists.
"A big issue is whether developments in the relatively small housing sector will spread to the large consumption sector, perhaps through declines in house prices," Janet L. Yellen, San Francisco Federal Reserve Bank president, said in a speech last week. "Should the decline in house prices occur in the context of rising unemployment, the risks could be significant."
National retail sales, excluding the volatile automotive sector, fell 0.4 percent in August, the Commerce Department said on Friday, more than had been expected and raising some alarm among economists.
But so far this downturn is playing out differently across the country. For instance, in the Washington area, housing prices have gone way up and consumers rely on home-equity loans as much as in Fort Myers. But housing is not the predominant source of job growth. Only an eighth of jobs in the Washington area are real estate-related, which has lessened the impact of the housing slowdown.
Overall though, economists have grown more pessimistic. According to a survey by Blue Chip Economic Indicators a month ago, economists said the odds of a recession in the next year have risen to one in three, up from one in four a month ago.
The major question is whether areas like Fort Myers have gone through the worst or if they are still heading downward. There are signs of both. It could take two years to sell all the houses currently on the market, and a Manpower Inc. survey of businesses found that a third planned to reduce their employee count in the fourth quarter.
Still, some real estate agents say a few buyers are returning, attracted by cheap prices, a potentially optimistic sign.
"The sooner the excessive prices correct, the sooner these markets can get back to growing again," said Mark Vitner, a senior economist at Wachovia. "It's just painful while it's happening."