Housing Markets Won’t Recover Until Employment Does

Splinters of good news spurring optimism and a broad market rally over the past few months are also surrounded by various weak indications that the U.S. economy is not quite on a path of sustainable recovery-despite what is perceived by the capital markets. For example, as news across the pond pointed to the end of a recession in France and Germany on Thursday, another dip in retail sales (a monthly decline of 0.1% for July, leading to a 9% y-o-y decline) on top of a record number of homes receiving a foreclosure filings in July reminded us that we are still surrounded by a very weak economy. More importantly, the July labor report continued to indicate a bleak employment landscape in our opinion.

As various housing indicators continue to come in ahead of expectations, we remain primarily focused on the employment situation as the principal driver of the housing markets-affecting both demand and supply. Unemployed consumers cannot buy homes, and protracted unemployment makes it difficult to service mortgages which can lead to forced sales or foreclosures, events that add to the current high level of unsold home inventory.

While low home prices, a large supply of foreclosures, various government interventions and low mortgage rates may make buying a home more attractive, rising unemployment and stricter lending standards continue to deter any significant rise in demand.

On top of the optimism spurred by various home sales and price data that have come out over the past month, the unemployment report for July did show some “better-than-expected” numbers indicating that the employment decline has slowed. However, as our strategy team discussed in its analysis of the Bureau of Labor Statistics July Employment Report on Friday, there are many ways to look at the numbers and in the end people are still losing jobs-suggesting that housing demand will remain weak and mortgage delinquencies and foreclosures will continue to rise higher.

Comments

[CautiousInvestor]

A recent study suggested that the relationship between value and debt was the leading cause of forclosure; those underwater are most likley to be foreclosed upon as they have the least reason to stay.

In the face of weak labor markets, I think this will be the driving trend and it is widely expected that the fraction of homeowners underwater will increase from the 25% to 30% range to the 50% range.

In another study, many of the sellers were REO and foreclosures; only 10% of the sellers would be classidied as typical sellers. This might change with a stronger labor market but I see few reasons to expect such a development.

2009 Aug 16 10:42 AM

[Dave Wrixon]

Its a Catch 22 situation.

The only way out is for people to work and save their way out of the hole, and for that to work the dollar needs to be devalued.

The Banks are crippled buy Real Estate, Real Estate is crippled by Unemployment and Unemployment is being driven by lack of spending by consumers, who in turn are being hit by all of the above. It is going to be a long hard slog, and all we have heard so far is promises of easy money!

2009 Aug 16 10:58 AM

[Troyhector]

I think housing market would not improve until the job market improves.

It is a known fact that with the rise in unemployment rates and inability of the helpless borrowers to repay the loans, mortgage delinquencies are on the rise.

The unemployment rate in the nation, which stands at 9.4% currently, may even increase to alarming double digit number making the financial situation even worse for the borrowers to repay. The layoffs of many workers have been permanent and hence, their hopelessness in recovery of the jobs or helplessness to repay mortgage over time looks bleak and they resort to foreclosure than choosing to invest or borrow more money on something that they are not sure whether they would be able to afford in the long run.

Read More: www.housingnewslive.co...

2009 Aug 17 01:26 PM