Home losses to cost $482M

Home foreclosures will drain $482 million from the Memphis area economy next year.

That's the conclusion of a U.S. Conference of Mayors study of 361 metropolitan areas done by Global Insight of Lexington, Mass.

"That includes reductions in activity in the construction sector and retail sales, then all the smaller economic activity that depends on those," said James Diffley, who headed up the Global study group.

There was no breakdown on those categories or on lost property or sales taxes, he said.

"Some of that (economic loss) would be reflected in lost tax revenue," Diffley said.

The metro area figures were based on Global's models of each city economy, he said.

The findings make sense, said John Gnuschke, director of the Sparks Bureau of Business and Economic Research at the University of Memphis.

"It seems reasonable that we would have a lot of losses, primarily because subprime mortgages are a substantial proportion of the mortgages made here since 2000," he said. "We have a lot of poor people who were more inclined to take out a subprime mortgage."

Subprime loans carry higher interest rates and less favorable terms than prime loans and normally go to borrowers with blemishes on their credit records.

A third of ZIP code areas in Shelby County had at least 50 percent of loans from 2004 to 2006 classified as subprime, according to figures from the U of M Center for Community Building and Neighborhood Action.

"Predominantly African American neighborhoods and borrowers are clearly targeted," said the report from Phyllis Betts, director of the center.

The mayors' study may underestimate the foreclosure effect "because this is a non-recession scenario and the probability of a recession is increasing each day," Gnuschke said.

About the tax effects, he said, a depressed real estate market means fewer new properties added to the tax roles. Plus, foreclosures in a neighborhood drag down property values, not only of the repossessed homes, but also of neighboring property. In turn, tax collections fall.

Memphis Mayor Willie Herenton said he's aware of some of the trends the study points out.

"One must recognize that these numbers also encompass parts of Mississippi and Arkansas and not Memphis proper," he said. "The City of Memphis has yet to do its own economic impact study as it relates to this crisis and how it could potentially impact the city's tax collection status."

Sales tax isn't a major revenue source for Shelby County, said Mayor A C Wharton. He doesn't see the bottom falling out of home values or property taxes.

"You get more house for your dollar here (than in other areas), so the room for loss isn't as great," he said. "We're in better shape to take shrinkage."

Also, the next property reappraisal isn't scheduled until 2010. While there may be some appeals of assessment between now and then, Wharton said, "Hopefully we'll be out of the slump by then."

Each penny on the county tax rate brings in about $1.6 million and Wharton doesn't see that being "disturbed."

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source: commercialappeal.com