Housing Market:

--about 5,000 homes are in foreclosure, four times higher than last year;

--the housing market is swamped with inventory; more than 19,000 homes/condos are listed, many of which are selling for less than the value of the owner’s mortgage debt (that’s important because you’ve got to convince the bank to take a hit, which slows down the inventory correction);

--home prices are down 14%, more than twice the national decline so far;

The Ripples:

--The city has eliminated 40 job slots related to the housing boom;

--County tax revenue is down 14%; plans for public school expansions are shelved due to both lack of resources and the fact that folks are leaving the area;

--Unemployment is up from about 3% to about 5%;

--A local car dealer reports the first significant sales drop in 25 years; a popular restaurant says business is off by a third;

--The empty homes are leading to sharp increases in crime rates; burglaries are up 35%; robberies, up 58%;

And then there are ripples that will emanate from these ripples. One local pointed to an “upside of the housing downturn:” it used to be tougher to hire people. He’s now getting 14 applicants for every job. Well, the downside to that upside is that wage offers will surely start to decline, as the supply of labor outpaces demand.

Another strange upside: the courts are so deep in foreclosure litigation that some families who know it’s coming are getting a respite: “We figure we have at least six months,” reported one resident. “We haven’t heard a thing from the bank for a long time.’”

Such reporting puts a human/community face on the macroeconomics of the housing meltdown. But it also provides some important insights in the way this is playing out.

First, while no region has escaped the spillovers from the bust, those markets that inflated the most are feeling the most pain. Second, this is a slow bleed. Foreclosures can take months, housing prices have actually been slow to correct (we’re talking big potential losses here, and neither owners nor banks want to cut prices unless they have to), meaning the inventory overhang will literally take years to work itself out. Third, the tax base of local communities is resetting significantly, as populations shift and taxes related to property and housing begin to tumble.

Many argue that such corrections may be painful, but they’re just the downside of the hill; the inevitable bust following the boom. You had your dessert first; now you’ve got to eat your spinach.

I don’t buy it for a second. Yes, as one real estate broker asserts in the piece, “Greed and speculation created the monster.” But we have institutions in this country—the Federal Reserve is the main one in this case—that are designed to push back against such human frailties. They’re supposed to watch for excesses exactly like those afoot in Cape Coral and turn up the regulation when necessary. In this case, that would have meant both tighter lending standards and national recognition of the housing bubble, warning people not to buy into it. Instead, lending standards were hugely relaxed and the Fed actively encouraged the use of “innovative” borrowing schemes.

One can only hope that we (re-)learn an important lesson: market ideology breeds market failures, and market failures hurt people…real people.

--Jared Bernstein