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Barry D. Wood Headshot

Michigan's Desolation Row

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Warren, MI - Here in southeast Michigan the great recession feels more like depression. The region's unemployment rate is 17% and rising. Already the highest jobless rate of any metropolitan area, the carnage will worsen in 2010, as several still operating auto-related plants are slated to close.

Michigan never emerged from the last recession and has shed jobs for eight consecutive years. But 2009 has seen the biggest job losses in 70 years, with University of Michigan economists projecting 292,000 lost throughout this year alone. Michigan's cumulative job loss is just under one million, meaning 20% fewer people are at work than a decade earlier. Once the world's premier car production center, industry in southeast Michigan is a shadow of what it was. Today, more Michiganders work in health care than manufacturing.

Michigan is a case study of how job losses and the housing slump combine with ferocious effect. Unlike many parts of the country, Michigan didn't have a home price bubble in the first half of this decade. But despite having been flat, home prices since 2007 have fallen off a cliff. Zillow, a firm that monitors home prices, reports that in Warren, the Detroit suburb that is Michigan's third largest city, the median home price fell 42% in the past two years to $73,000. Realtors claim later data reveals even lower prices. Warren mayor Jim Fouts says it is not uncommon for a foreclosed property assessed at $100,000 to sell at a 90% discount. In September an investor paid $80,000 for 24 vacant lots and 38 repossessed houses. In Pontiac, Warren's neighbor to the west, the once proud Silverdome, the former home of the Detroit Lions, sold at auction for $583,000. The 80,000-seat stadium situated on 127 acres cost $52 million to build in the 1970s.

Strategic defaults from the unemployed weigh heavily on the depressed housing market. Foreclosures nationally have risen 30% annually for four years and in Michigan there is no relief in sight. Realtor Cathy Coon says by holding many foreclosed properties off the market, banks are triggering further uncertainty and price declines. One of every eight home mortgages in Michigan is in arrears or foreclosure. According to First American Core Logic, 48% of Michigan mortgage borrowers are underwater, a perverse incentive not to keep current on a mortgage that exceeds the home's market value.

Economist Mark Vitner of Wachovia Bank calls housing in metropolitan Detroit "a road to perdition where lower home prices portend lower tax collections and thus higher taxes." An anguished Mayor Fouts says Warren "is at the epicenter of a fiscal crisis, from which it will take 10 years to recover."

That may be too optimistic. Municipal services are being cut. Fouts has cut his own pay and benefits, and is proposing 20% pay and pension cuts for the police and fire departments. He is offering General Motors a 30-year tax abatement to move its headquarters from Detroit to its Technology Center in Warren, the vast half-empty engineering campus designed by Eero Saarinen in the 1950s.

The Southeast Michigan Council of Governments is projecting that this year local tax revenues declined by 4% for the third consecutive year. The Pew Charitable Trust identifies Michigan as one of ten states in fiscal peril. State revenue this year, it says, is down 16%, leaving a 12% budget shortfall. The state and southeast Michigan's plight may resemble that of Mike Campbell in Hemingway's 1926 novel, The Sun Also Rises. Asked how he went bankrupt, Campbell replies, "slowly and then suddenly."

Jim Jacobs, President of Macomb Community College, a multi-campus facility with over 20,000 students, concedes that area living standards will fall in the short-term. "But," he adds, "if Chrysler, Ford and General Motors survive, we have an opportunity to hold on to many good jobs." He believes southeast Michigan will remain the technical and administrative hub of the car business and create new jobs in new technologies like solar and battery power.

But here in Warren there is no shortage of doomsayers. When Chrysler next year closes its Sterling Heights assembly plant, not only will a further 4,000 jobs be lost but so will $1.2 million of annual tax revenue. A retired medical doctor in one of Detroit's richest suburbs foresees a decade of pain. Not wanting his name used, this successful surgeon has lived all of his 75 years in the Detroit area. Now he sees unprecedented cutbacks with more to come. "People," he says, "have cut back on going to the doctor and the dentist. The demand for legal services is way down. People without jobs are trapped because their property values may have declined 70% and there are no buyers." The pain will compound, he says, "as displaced auto workers are forced to sell their toys--their Harleys, boats, RVs, and lake homes up north. The young people are leaving in droves. Politicians are in denial. And we're left with a god-awful mess."