While housing and leverage powered the economy over the last 20 years, food and commodities will lead the United States in its recovery from the Great Recession. And the nation’s bread basket — states through the Midwest that focus largely on agribusiness — will lead the way, said financial analyst Meredith Whitney, founder and CEO of Meredith Whitney Financial Advisory Group. But many states, especially those on the coasts, are facing severe budget crises that will continue to stretch their abilities to provide basic services, she said while speaking Tuesday at HousingWire’s REthink Symposium. Whitney sounded the alarm on states’ fiscal troubles in recent months, and in December spooked the municipal bond market with her prediction of a rash of municipal defaults and bankruptcies this year. Some of the states that drove the economy the past two decades — California, Florida and Nevada — are the weakest today and will continue to drag down gross domestic product until housing stabilizes, Whitney said. Those states, as they cut spending, are putting further downward pressure on home prices, she said. “From 1994 to the (housing) peak, $8 trillion of mortgages were created. Over 18 million homeowners (were) created. When I look at the numbers, I’m still in awe of that.” That $8 trillion had a huge multiplier effect, she noted. “You put people in homes, you put people to work in construction, homebuilding supplies, financial services, logistics, job creation at the government level and the list goes on and on,” she said. During that time, the consumer put on a lot of leverage and now those consumers are deleveraging. Home prices, she said, will continue to fall further as will the homeownership rate. “We expect another 7% to 8% decline in home prices within the next 15 months,” Whitney said. “We are in our fourth year of mortgage contraction. That has never happened before in this country.” But the nation’s midsection didn’t see the big run-up in housing prices seen in coastal regions, and Midwestern states have kept their balance sheets fairly clean, she said. Now the nation’s midsection is growing as the agribusiness industry takes off. Whitney said the stimulus funding that has helped states in the coastal regions cushion the economic blows. But that source of funding comes to a screeching halt in June. The only options will be to cut spending and raise taxes. Doing so will have big consequences as state spending is 12% of the nation’s gross domestic product, she said. States also are in a pickle for underfunding their future obligations, such as pension funds. State and local governments are the largest employers in the U.S. and their worker base has grown by 314% since 1955, over two times the rate of the private sector. Whitney expects as many as 1 million to 2 million state and local government jobs to be lost, at a huge impact to the economy. “There is a day of reckoning that is coming,” she said. Write to Kerry Curry. Follow her on Twitter @communicatorKLC.