When the fates of money, goods and services are slamming the door, they open a little window somewhere else. This time, the window may be in Lincoln and Omaha.
RICHARD PIERSOL / Lincoln Journal Star | Posted: Tuesday, November 27, 2007 6:00 pm
Things look ugly out there in the old inescapable economy.
We have a war on. Gas prices through the roof.
And now consumer confidence is down to a two-year low, about where we were after Katrina blew the Gulf Coast apart, according to the Conference Board’s national survey of 5,000 people.
But wait.
Always, when the fates of money, goods and services are slamming the door, they open a little window somewhere else.
This time, the window is in Lincoln and Omaha, if a new study is to be believed.
Both are among a handful of metro areas expected to escape a loss of economic growth from the housing “crisis,” the bursting of a bubble that drove housing prices higher in some parts of the country.
Home prices and sales are dropping a lot more in some places than they are here, and a lot more people who were marginally qualified for mortgages are losing their homes. Banks are writing off billions in loans that aren’t being paid off.
People are hunkering down, losing confidence, fearing for their jobs, the survey shows.
The big mystery now: Whether those attitudes will drive the economy to retreat into recession. That’s when it doesn’t grow, but shrinks, when companies are more inclined to lay people off.
Most economists think we’re in for at least a year, maybe a couple, of much slower growth.
According to a new forecast by the U.S. Conference of Mayors, the housing crisis will cut economic growth by more than 25 percent in 143 U.S. metro areas next year, and by more than a third in 65 areas.
But not in Lincoln or Omaha, where damage to economic growth by housing troubles is expected to be negligible, the report says.
Both areas are expected to have real economic growth — growth minus inflation — of 2.2 percent next year, according to Global Insight, a financial and economic forecasting company that did the report for the conference of mayors.
To compare, the economy of Fort Collins-Loveland, Colo., area is expected to grow at 2.5 percent, but with a loss of 0.5 points attributed to the housing troubles, worth about $68.2 million in that economy.
Fresno is expected to grow at only 1.7 percent, with a loss of 1.1 percentage points because of housing, at a cost of $716.3 million.
And so on.
The places with the highest rate of loss are Myrtle Beach, S.C., Merced, Madera and Napa, Calif., and Sarasota-Bradenton-Venice, Fla.
Lincoln and Omaha are spared the losses, as are some other cities, because they didn’t have the wild appreciation of housing values and speculation that prevailed in places like Las Vegas, said Jeannine Cataldi, senior economist at Global Insight.
“Areas that didn’t see a huge run-up are benefiting now, because they’re deemed more affordable,” she said.
More stable, slower growth of housing and values in the Omaha and Lincoln areas during the past several years is saving a lot of trouble now, she said.
Since the turn of the century, both cities have recorded annual home price appreciation in low-to-middle single-digit percentages, compared, for example, to 40 percent over one 12-month period in Las Vegas.
Now speculators are dumping houses like the bad investment habits they became in what were the hottest markets, states such as Florida, Nevada and California.
Here’s where the consumer confidence comes in.
Economic growth is bound to slow, partly responding to the crash of the boom.
“People had a lot of equity, people extracted that to spend,” Cataldi said.
“Now credit markets are tight, people are really hesitating, they want to see how this crisis will bear out. It’s going to affect consumer spending, that’s two-thirds of economic activity. If that slows, it’s going to slow everything down.”
“There’s a lot of money involved,” she concluded.
The foreclosure crisis will have profound economic effects in 2008, the report warns.
The mayors hope their report will put pressure on lenders and investors to rework problem loans and head off massive foreclosures, which would further delay recovery in the housing sector.
In Lincoln, consumers showed more confidence than might be expected.
Kathleen McCambridge, a retiree from Arlington Heights, Ill., was in town visiting her son.
Asked to characterize her confidence in the economy, she said: “I’m not desperate about it. I am concerned. I really think our country is strong enough to rebound.”
Clearly a closer observer of the economy than most people, McCambridge is more worried about the value of the dollar, the debt the U.S. government owes China and the news that Abu Dhabi’s Investment Authority said it will invest $7.5 billion in Citigroup Inc., America’s largest bank.
“That concerns me,” she said. “The (United Arab) Emirates are our friends, but it’s for their own advantage. I don’t think their interests are ours.”
More than economic issues, McCambridge is concerned about apathy in America.
“The answer lies in the political process,” she said. “We have to be more engaged.”
Even though he’s unemployed, and had a condo foreclosed on him in Arizona four years ago, salesman Hank Highland of Lincoln doesn’t blame the broader economic circumstances.
“I think the economy is doing pretty good,” he said. “Some of us are challenged more than others, but that doesn’t have as much to do with economic circumstances as my ability to find a niche.
“I always tell people I moved here in ’75 and haven’t made enough money to leave yet.”
Reach Richard Piersol at 473-7241 or dpiersol@journalstar.com.