US Sun Belt towns may mimic Rust Belt decline-study

NEW YORK Thu Jan 6, 2011 5:00pm EST

NEW YORK Jan 6 (Reuters) - U.S. Sun Belt cities enduring the steepest drops in real estate values are vulnerable to the long-lasting economic declines well-entrenched in places in the heart of America's Rust Belt, according to a recent report.

Places like Stockton, California, and Fort Myers, Florida, that grew most quickly during the housing boom are the places where economic activity may never return to previous peaks, the the Research Institute for Housing America said.

"There will be and already have been substantial threats to the viability of certain neighborhoods," wrote James Follain, the paper's author and a senior fellow at the Nelson A. Rockefeller Institute for Government.

Areas east of San Francisco and Los Angeles are in danger of replicating the models of "declining cities," where population declines and houses and storefronts stay vacant for years, the report said. Lack of credit from banks and increased importance of neighborhood choice by buyers will only worsen recovery prospects, it said.

These areas were predicated on commuters, low gasoline prices and an irrational exuberance about home price increases, the study said.

"Though the Great Recession is still unfolding, the likelihood seems high that many neighborhoods within the metro areas hit hardest may reach a tipping point that will threaten their long-term viability," it said.

The RIHA is the "Think Tank" of the Mortgage Bankers Association, according to its website.

Since 2006, Stockton has led the nation with a 75 percent drop in home prices, following a 47 percent increase in the previous three-year period, according to a Federal Housing Finance Agency index adjusted for the consumer price index. Outside of California, prices in the Cape Coral-Ft. Myers, Florida, area have dropped 60 percent since 2006, after a 55 percent gain in the preceding period.

Cities that are seeing unprecedented drops in home prices and rising foreclosures can draw lessons in public policy from Cleveland and other Rust Belt cities that have been dealing with decline even before the national housing slump, said Michael Fratantoni, vice president in charge of research and economics at the MBA.

"Stockton is going to be facing some of the same questions that Cleveland and Detroit were facing," he said. (Reporting by Al Yoon; Editing by Dan Grebler)

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