LEHIGH ACRES - Florida's economy is shrinking in another crippling blow to the housing market of the state, which leads the United States in foreclosures and is grappling with record levels of unemployment.

For decades, Florida's ability to attract outsiders has been a driving force behind its economy, making it the fourth-largest U.S. state with about 18.75 million people.

But the recession and joblessness have slammed the brakes on growth, causing the population to drop by 58,000 from April 2008 to April 2009, according to the University of Florida's Bureau of Economic and Business Research.

The first such decline since 1946 raises troubling questions about an economy built on newcomers, who used to pour into the state at a rate of about 1,000 people a day.

Sean Snaith, an economic forecaster at the University of Central Florida, calls it Florida's population Ponzi scheme.

It's the idea that new Floridians would always be an asset for earlier arrivals, especially the state's disproportionate number of construction workers, real estate brokers and mortgage bankers.

Construction and real estate accounted for nearly a third of all jobs in Florida at the height of its housing boom in 2005, far above the national average.

There are a couple of places where their economies were basically just feeding themselves off the housing sector, and as that grew and the construction numbers grew so did those economies, said Snaith, referring not just to Florida but to other Sun Belt hot spots still reeling from the U.S. housing meltdown.

When the housing boom went bust there was very little for some of those regions to fall back on in terms of a diversified economic base, and those are the places that are suffering most profoundly now. said Snaith.

The suffering has been felt across Florida. Chris Lafakis, an economist with Moody's Economy.com, says nearly one of every four mortgages in Miami is either delinquent or in default and Fort Lauderdale is not far behind.

But few places have been harder hit than Lehigh Acres, a once-booming suburb of Fort Myers in southwest Florida whose cookie-cutter side streets are now pockmarked by vacant lots and empty, foreclosed homes.

Lehigh saw a wild run-up in property values during the boom, but it was decimated when the bubble burst.

Together with nearby Cape Coral on the Gulf Coast, it has become an unwilling poster-child for the national housing disaster as foreclosures continue to erase hundreds of million of dollars in property value.

AMERICAN DREAM

Eugen Borosch, a former German auto executive who is invested heavily in Lehigh real estate and owns a local finance company, insists that the free fall in its economy and housing market are only temporary setbacks. It will turn around, he says, as smart buyers realize they can now pick up a $200,000 home for $50,000 to $60,000.

It's a chance of a lifetime for somebody to fulfill his American dream, said Borosch.

But the dream seems to be over for many residents of Lehigh. Charlotte Rae Nicely, head of Lehigh Community Services, says she has seen a dramatic spike in demand for food and cash handouts from the social agency she runs.

The first few people that came in here this morning, it's so depressing. They're desperate. They don't know what they're going to do. They're crying when they come in here, said Nicely.

You see the blue-collar workers coming in here to get help. When I first came to work here it was your typical poor people ... Now it's construction workers who have lost their jobs and they're unable to get another job, she said.

Fort Myers Mayor Jim Humphrey spoke with guarded optimism about the outlook for recovery in the area's housing market.

But Humphrey said the real estate debacle would hopefully serve as a wake-up call about the need to build a more stable economy in Florida and cut its dependence on population inflows and growth for growth's sake.

We are too much of a service-oriented, retirement-oriented, tourist-oriented area, Humphrey said in an interview on Monday.

The days of 3 and 4 percent population growth in Florida are gone, and that's going to bring with it a host of challenges in terms of financing government and also in terms of what are going to be the engines of growth for Florida's economy in the decades to come, said Snaith

We've got to diversify and we've got to do that fast, he added. It's going to be a shift away from the pure construction driver, the tourism and leisure. Those things are going to be there but we need to develop some other economic muscles, he said.

Florida relies tremendously on domestic and international immigration to fuel expansion in its service sector and to fuel demand for housing, said Lafakis, who predicts a slow comeback in the state's housing market.

When one of its biggest assets turns into a weakness, it's going to weigh on growth even more, he said.

(Editing by Pascal Fletcher and Kenneth Barry)

Foreclosures Unemployment Florida