Housing Crisis Casts a Cloud Over Sun Belt
Tuesday, February 5, 2008
PHOENIX -- When residents of Maricopa, Ariz., south of Phoenix, vote in the presidential primaries Tuesday, it will be against a backdrop of vacant storefronts and sprawling, terra-cotta-roofed subdivisions that are studded with for-sale signs as far as the eye can see.
The state government is staring at a billion-dollar shortfall in its $11 billion budget. Forecasters expect a region that grew 7 percent in 2006 to contract this year. Retail sales, which rose 16 percent in 2006, are dropping. Dennis Hoffman, an economics professor at Arizona State University, said he had never seen such a sharp turnabout in 25 years studying the local economy.
To many residents of the Phoenix area, which has long been one of the nation's sunniest economies, the solutions being offered by Washington may be too little, too late.
Formerly booming Sun Belt cities are the epicenters of this economic downturn. Many economists believe that the likes of Phoenix, Las Vegas, Miami and San Diego are already in recession. A Washington Post-ABC News poll released Monday found that the economy and jobs are now the foremost issue in voters' minds nationally. A McClatchy-MSNBC poll released Sunday found that the same was true of likely voters in Arizona's Democratic primary Tuesday. A trip through the suburbs of Phoenix shows why people in these cities, reeling from the popping of the housing bubble, are so anxious.
Within these regions, the pain is concentrated among people who overextended themselves on mortgage debt to take advantage of housing prices that seemingly did nothing but rise. Because many of those people are facing massive debt, the tax rebates of $500 to $600 per person contemplated by Congress would offer little solace.
"We're in so deep that it doesn't seem like anything will help," said Rebekah Ao, 33, a pregnant homemaker who lives in a new four-bedroom home in Avondale with her husband, Otto, a truck driver. The Aos, with $50,000 in income, owe a total of $607,000 on mortgages for two houses they bought since they moved to the Phoenix area about two years ago.
Housing prices in Phoenix have dropped by double-digit percentages in the past two years. A steep decline in construction jobs caused the record-low unemployment rate to spike by a full point, to 3.9 percent, from May to December. Population growth has slowed by half, and retail and office development are also ebbing.
Rival stimulus plans being considered in Congress promise a cash infusion of as much as $1,200 per couple and $300 per child. The Senate plan would increase funding for food stamps and extend unemployment benefits. The House measure, which is supported by President Bush, would allow government-sponsored mortgage-funding companies Freddie Mac and Fannie Mae to back larger loans, which may temper the decline in the housing market by freeing up more money.
Supporters of the stimulus packages say rebate checks will help families hit by sharp increases in gasoline prices or help them hold on even as adjustable-rate mortgages reset higher. The hope is that the stimulus package will stave off, or at least moderate, the kind of recession that seems to be taking hold in Phoenix.
The Aos would be happy to have the money. But for them and millions of others whose financial problems are rooted in decreasing housing values, it will not make a lasting difference, according to many analysts. The reason: The stimulus package, and even the deep interest rate cuts made by the Federal Reserve in recent weeks, cannot quickly reverse plummeting home values and make bad investments good.
"It is tough," said Joann Hauger, executive director of the Community Housing Resources of Arizona. She sees 20 to 30 people a month in need of housing counseling because they can no longer afford their mortgage payments. "I don't know if Bush's $300 or $600 will make a difference," she said.
In Maricopa County, which encompasses much of the Phoenix area, there are about 13,000 homes in foreclosure, which is more than a sixfold increase over two years ago.