Find Out Which States Fare Better, Worse Economically

March 26, 2008 — -- Recession fears have rattled international markets and consumers, and it turns out some states are feeling the economic pinch more than others. But while five states have officially entered a recession, others have bucked the trend and have booming economies.

"Good Morning America" financial contributor Mellody Hobson tells you which states are struggling, which are booming and what it all has to do with the housing market.

States Feeling the Pinch

Arizona, California, Florida, Michigan and Nevada were already in the midst of a recession at the start of the year, and these five states alone account for 25 percent of the nation's total economic output. Another 15 states — which collectively represent another 25 percent of economic output for the U.S. — are at risk of sliding into a recession, and many of these states are in the Midwest, including Wisconsin, Minnesota, Illinois and Ohio. So, all told, you essentially have nearly half of the U.S. facing tough times.

Common Link

As you would expect, the housing market plays a big role. During the housing boom, home prices soared in many parts of the country, and homeowners tapped into their home equity to support their expanding lifestyles, pumping more money into their local economies.

The bust of the housing market has had a similar impact — albeit a negative one — on the same local economies. Take, for example, Nevada, California and Florida. These states saw skyrocketing home prices during the housing boom, and in the month of February, they had the highest rates of foreclosure in the country.

States Booming Economically

Not all the states have as tenuous economic times as Nevada, Florida, California and Michigan. There are areas that are growing. They include Iowa, Kansas, Nebraska, Indiana and North Dakota.

The common link here is agriculture, an industry which has benefited from the rising prices of corn, soybean and wheat. Additionally, those states hit hardest by hurricane Katrina, including Louisiana and Alabama, are also flourishing. Recovery efforts have created jobs, and tax incentives have brought businesses back to these regions.

Swelling oil prices have also contributed to growth, particularly in Louisiana, which is the top crude oil producing state in the country. And while gas prices slipped a bit lower earlier this week from their all-time high of $3.28 a gallon on March 16, they are still incredibly high at an average of $3.25 a gallon.

The Deal With the Housing Market

As they say in real estate, location is everything — and whether the news is good or bad depends on where you live.

Overall, prices are down. The median price of a home is now $195,900, which is 8.2 percent lower than a year ago.

However, there are still pockets of the country where home values are stable or even rising. For example, home values rose 9.3 percent in Utah last year, while North Dakota saw a gain of 7.9 percent, and Montana a gain of 6.9 percent.

So, whether or not it is a good time to sell depends upon where you live. For home buyers, the same is true — location is everything. The upside of declining prices, as well as the surplus of foreclosed homes, is that many would-be buyers who may have been priced out of the market during the boom times are now able to get in.

All this said, the full impact of rising foreclosures is yet to be felt, and I think the housing situation will deteriorate more before it starts to improve. Remember, clusters of foreclosed homes undercut property values for existing homeowners and can also create problems for lenders if their books become too overwhelmed with foreclosed homes selling at fire-sale prices.