unemployment Archives - Real Estate News and Commentary

June 29, 2010October 5, 2019

Employment is the key to a stable housing market

by Dan Krell © 2010

The one question that everyone is asking, “where is the housing market headed?” A new focus is needed to stabilize the housing market as the national home buyer tax credit expires (state home buyer tax credit programs, such as California, may continue through the end of the year), and criticism for government foreclosure relief programs increases.

As the national home buyer tax credit sunsets, some in the industry (such as the National Association of Realtors) are scrambling to get a further extension. Proponents of the tax credit point to home sales spikes through the year as evidence of the tax credit’s efficacy. A June 25th NAR press release (realtor.org), described efforts to extend the closing deadline to assist those who could not close by the June 30th target. An amendment to extend the deadline was inserted into H.R. 4213: “American Workers, State, and Business Relief Act of 2010,” which passed both the House and Senate, but still needs to go to conference prior to becoming law.

Doubt remains over the efficacy of the home buyer tax credit; many critics applaud its none too soon conclusion. Putting aside the reports of fraud and abuse by those who have undeservedly filed for the credit, Fannie Mae’s March revised 2010 housing outlook (Economic and Mortgage Market Analysis; March 17, 2010) expressed doubts over continued effectiveness. The report cited various reasons that the most recent tax credit would not be as successful as prior tax credits. June’s Economic and Mortgage Market Analysis (FannieMae.com) reported that the most recent tax credit in fact only temporarily boosted home sales in April. April’s increased sales may have been due to many home buyers seeking to meet the initial qualifier for tax credit (which was to have a contract on a principle residence).

In addition to increasing home sales is the attempt to keep distressed home owners in their homes. Reports criticizing government mortgage modification and relief programs citing a lack luster performance seem to be appearing with increased frequency. Take for example the an April 20th Bloomberg story citing the Special Inspector General for the Troubled Asset Relief Program, Neil Barofsky (“U.S. Treasury’s Housing Program Fails to Stem Foreclosures, Watchdog Says”). Mr. Barofsky criticized HAMP (Home Affordable Modification Program) saying it has made very little progress. Additionally, it is estimated that 40% of those helped will eventually default; which could stem from HAMP’s high median debt to income ratios of 61.3% after lowered mortgage payments (FHA guidelines allow for a maximum overall debt to income ratio of 41%).

Since the fourth quarter of 2008, housing indicators have been inconsistent (much like other economic indicators). Even though doubt exists about tax credit and foreclosure relief effectiveness others argue the future of housing may lie with employment and personal earnings.

A recent Florida Realors® study (“The Face of Foreclosure”; floridarealtors.org) points out the correlation between unemployment and foreclosure. The April 6th 2010 press release quoted, Florida Realtors® vice president of public policy, John Sebree, as saying “…In most cases, it was a combination of rising living costs, unemployment or decreased pay, health issues and other factors that caused homeowners to get into trouble. Simple answers and trite political responses just don’t tell the whole story.”

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 June 28, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

April 15, 2010July 25, 2019

Surprise findings about causes of foreclosure

Politics, Wall Street, predatory lending, and bad loans are just a few of the generalizations that the public has attributed to rising foreclosure rates. However, a Florida Realtors® research study on foreclosures found a much more complex story.

Earlier this month, the Florida Realtors® announced the findings of their “Face of Foreclosure” research project (floridarealtors.org). The project was designed to establish the impact of foreclosure on the Florida housing market and home owners, as well as to assist Florida’s Legislature to decide what intervention (if any) is needed by pinpointing the causes of foreclosure.

The report cited a positive correlation between unemployment and foreclosure in the Florida cities that were hardest hit by the foreclosure crisis. However, the study’s interviews of families who are in foreclosure did not reveal one cause for foreclosure; the study revealed a trend of multiple factors as the cause of their financial challenges.

In the April 6th 2010 press release, Florida Realtors® vice president of public policy, John Sebree, was quoted as saying that “Contrary to what some researchers have argued, many Florida homeowners were not driven into foreclosure by simply being trapped in bad loans, or losing their jobs or taking pay cuts.”…”In most cases, it was a combination of rising living costs, unemployment or decreased pay, health issues and other factors that caused homeowners to get into trouble. Simple answers and trite political responses just don’t tell the whole story.”

You can view the full report on the Florida Realtors® research webpage (floridarealtors.org/Research), click on the title “2010 Face of Foreclosure.”

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

November 24, 2009October 5, 2019

The link between employment and home ownership

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.