by Dan Krell © 2009
It became very clear this past summer that rising unemployment was inhibiting attempts in stabilizing the real estate market. Efforts in reducing rising mortgage defaults through government interventions seemed to be a reactionary response rather a forward looking model. Ruth Simon and James R. Hagerty were to the point in their Wall Street Journal article entitled, “Unemployment Vexes Foreclosure Plan” (June 26, 2009), saying that government foreclosure programs were a response to the poor lending practices which led to the sub-prime crisis. Until recently, foreclosure prevention programs were primarily focused on modifying payments, lowering interest rates, or a combination of the two.
As unemployment has crept higher through the third quarter of 2009, foreclosures rates continue to climb. The U.S. Bureau of Labor and Statics (bls.gov) reported that the unemployment rate for October rose to 10.2% (the highest since 1983). Although Maryland’s unemployment rate rose to 7.3%, the unemployment rate in Montgomery County was reported in September to be 5.3% (dllr.state.md.us).
Meanwhile, the Mortgage Bankers Association (mbaa.org) reported on November 19th that delinquencies and foreclosures increased in the third quarter of 2009. The MBA press release reported that the increase in delinquencies and foreclosures are not in sub-prime mortgages, but rather driven by prime fixed-rate loans and FHA mortgages.
Although many economists predicted unemployment to continue long after the recession was declared technically “ended” in September, MBA’s Chief Economist, Jay Brinkmann, stated in the MBA November 19th press release, “Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP. Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures from 1.07 percent to 1.42 percent…”; essentially, the foreclosure rate increased by about 24%.
To his credit, Massachusetts Congressman, Barney Frank, has recognized the link between unemployment and foreclosure. His attempt to throw a life preserver to unemployed homeowners, possibly in the form of government loans to help preserve their homes, began in June. As reported in the Boston Globe (“As jobs remain elusive, foreclosures rise again” by Jenifer B. McKim, November 20, 2009), Congressman Frank will attempt to push through the measure to possibly offer loans to come from the $2 billion fund that was created with repaid TARP funds.
Employment and housing data continue to show glimmers of hope, only to be countered by further declines. This instability may be the reason why the Maryland Department of Labor, Licensing, and Regulation placed the statement, “…should be viewed with cautious optimism…” after the report of an addition of 1,500 jobs to the state in October (at a time when the state’s unemployment rate went from 7.2% to 7.3%).
Some experts look towards the second half of 2010 for employment to stabilize; others are not certain. However, the good news is that recession and growth periods are cyclical; so although we are enduring difficult times now, we are sure to encounter prosperous times again. Is it ironic that residential housing loosely mimicking the “boom-bust” cycles of the economy, often experiencing a positive bump after a major recession? No, because employment and home ownership are closely linked.
This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of November 23, 2009. Copyright © 2009 Dan Krell