05:47 pm
Fall Down Go Boom
Two stories today illustrate just how bad it’s going to get before things get better. First, via Calculated Risk, the story of one company and its sales in 3Q 2008 versus 3Q 2007:
[T]ruckmaker Volvo admitted demand across the [European] Continent has crashed by 99.7 percent as it took orders for just 115 new lorries in the last three months. That compares to orders totalling 41,970 in the third quarter of 2007.
Just to be clear, this is sales of semis in Europe. But look at those numbers again: 42,000 in 2007 and 115 in 2008. That’s beyond ugly.
The second story, from today’s Washington Post, describes conditions in Cleveland as a result of the subprime mortgage crisis and the subsequent collapse (and sale to PNC ) of National City Bank:
By 2003. . . property values began to soar. Wood-frame houses built nearly a century ago were fetching $70,000, $80,000 and even $90,000 — multiples of their previous peaks. Tax revenue accelerated, punctuating Cleveland’s claim as a comeback city. National City got in on what turned out to be a national boom, as it rapidly expanded its mortgage business into the fast-growing Sun Belt and ventured deeply into the subprime lending market. For a time, the strategy was wildly profitable, as the bank reported profit of more than $13 billion from 2000 to 2006.
And then the boom fizzled, leaving both the bank and its home town faltering. Overall, nearly 10 percent of the city’s properties have gone into foreclosure. National City has lost more than 80 percent of its market value this year. On Tuesday, chief executive Peter E. Raskind said 4,000 positions would be eliminated from its overall workforce of 29,000 over the next three years. The bank slashed 3,400 jobs a year earlier. . . .
Much of that money, from National City and other banks, found its way to Slavic Village, the childhood home of Rep. Dennis J. Kucinich (D), which local officials call ground zero for the foreclosure crisis. For decades, the neighborhood, which abuts a steel mill in the city’s southeast, was a struggling working-class community with an aging population and few new residents. But Slavic Village underwent a dramatic change beginning in the late 1990s as the tide of mortgage money flooded the area with new homeowners, lifting prices to unprecedented heights. Thousands of the neighborhood’s small wooden homes turned over, with investors selling to new buyers at multiples of their purchase price, sometimes within months, and often after making only cosmetic repairs.
“The deals became toxic immediately,” said City Council member Anthony Brancatelli, who for 17 years headed the Slavic Village Development Corp. “What should have been $20,000 or $30,000 homes became $80,000 or $90,000 homes with toxic loans.” The result has been a rush of foreclosures. The number of foreclosure sales in the five-square-mile neighborhood swelled from 114 in 2001 to 840 last year. In the first six months of this year, 316 Slavic Village properties have been through foreclosure, according to figures compiled by the development corporation.
This is the dark side of the crisis that most Americans really aren’t thinking about yet. It’s a vicious cycle: mortgages become toxic, jobs in sectors like banking and technology start to disappear, property values fall, the tax base erodes, and city revenues start to decline.
The bailout isn’t going to make any of this go away tomorrow, nor is it going to convince European companies to start buying semis.
I was in Cleveland last spring, and came away quite impressed with its dynamic central business district and its residents’ optimism that they were coming back from the worst of the seventies and eighties. Molly and I even talked (briefly) about moving there, given the relatively cheap mortgages (even at $90,000 the homes looked cheap to someone used to DC house prices) and its proximity to her mom in Michigan.
Sad to say, we made the right decision. It’s going to be a while before Cleveland rocks again.
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