A study commissioned by the U.S. Conference of Mayors and the Council for the New American City released Tuesday says that over the coming year the property value of U.S. homes will plummet $1.2 trillion, and at least 1.4 million homeowners will lose their properties to foreclosure. The study, prepared by research firm Global Insight, predicts 1.9% economic growth in 2008 -- a figure it says would have been 1% higher were it not for the ill effects of the mortgage crisis. The study predicts 7% home price declines over the year, and a 16% drop in California. However, while the current crisis would "go down on the record books," Global Insight said it will not "bring the economy grinding to a halt."
"Indeed, we expect job growth in 2008 to be 0.85% and GDP growth to be 1.9%," it said. "In 2009, those figures will be 1.2% and 2.9%, respectively. In the end, the economy will not come off the rails, and we may actually have learned something."
The report concludes with an ominous message to bankers and mortgage lenders: "The negative economic impacts cited in this report could also be significantly contained if mortgage holders, including holders of mortgage backed securities, and loan servicers could agree to new payment terms with families who have the ability to pay, but were placed in inappropriate mortgage products. Such actions will help to lessen the number of foreclosures thereby avoiding the further negative effects on local housing markets and on the broader economy."
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