The impact of the current crisis will not be isolated to individual borrowers or investors, but will be felt broadly by individuals, communities, and governments across the nation.  The high number and rate of foreclosures along with the weakening real estate market are taking a heavy toll on the economy, especially at the state level. 

Because of the crisis, residential investment and construction spending are dropping, as is consumer spending, due to decreased home equity wealth.  The reduction in income in housing-related industries is also trickling into other parts of the economy as demand for other goods and services declines.  As a result, all levels of government are bracing for huge shortfalls due to the loss of taxable income and reduced property values. 

California is expected to face a nearly $10 billion shortfall, while the Los Angeles metropolitan area alone could experience over $8.3 billion in lost economic growth in 2008.  (The San Francisco Bay Area will see a loss of $5.4 billion in economic growth.)  According to a report by the US Conference of Mayors, California cities may see a decline in collected property, sales, and transfer taxes of nearly $4 billion in 2008, and they project a reduction of home prices of up to 16% for the state.

The social impact of the foreclosure crisis is also taking a heavy toll.  Communities with high numbers of vacant houses are reporting increased levels of crime and have had to divert additional resources to address this issue.  Meanwhile, families experiencing extreme financial hardship are at greater risk of social instability.