Unemployment is now the cause of almost half of all foreclosures on conventional mortgages, raising concerns that mounting joblessness will stall any housing recovery and could cause more foreclosures next year.
The increase in unemployment as a cause is a significant shift from 2007, when foreclosures were primarily driven by the large number of homeowners who had taken on risky loans. Many were first-time home buyers or those who bought during the housing boom that ended in 2006.
Now, layoffs and the recession are playing the pivotal role in driving mortgage defaults. The 4.3 million people collecting unemployment is the most since 1974, the Labor Department says.
During the first half of the year, about 46% of the 90-day delinquencies on conventional, conforming loans were because of a loss of income, vs. 36% in 2006, according to mortgage giant Freddie Mac.
Job losses exacerbate the situation for homeowners with risky mortgages. "A subprime buyer is already more fragile, so when unemployment rises, foreclosures go up," says Freddie Mac spokesman Brad German.
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Mounting joblessness is also affecting homeowners who may have traditional, 30-year conventional loans but are living paycheck to paycheck.
They tend to be more urban, lower- and middle-class blue-collar workers, says Rick Sharga of RealtyTrac.
"It's not going to be pretty," Sharga says. "You're going to see whole different regions of the country suffer."
There are some things we're not in control of- many things! To say that the government will step in and help people keep their homes averting foreclosure sounds good, but how do you do that when the person doesn;t even have an income? Tell me, how does that work? Let me answer myself. It doesn't work. And with the unemployment rate soaring, the chances of averting mroe foreclosures is dropping like a rock.
Rising unemployment will definitely undermine chances of a housing rebound for months to come. Potential home buyers are less likely to borrow for a home because of uncertainty about job security. That could keep inventories high as unsold homes stay on the market for months ' dragging down home prices. And of cours, that's all we need more of now isn't it.
Add to that the fact that banks are less likely to lend when unemployment is high.
"Many people have adjustable-rate mortgages that they were planning on refinancing," says Elena Rivkin Franz, a real estate lawyer in the San Francisco area. "Unfortunately, if you don't have a steady stream of income, you can't get a refinance, or at least an affordable one." Getting rid of your ARM (adjustable rate mortgage) can't happen if you're unemployed, unless we want to goback into the sub-prime business again. :-(
A recent study by the National Coalition for the Homeless found homelessness rising. It's often hard for displaced workers to find new jobs. When they do, the new jobs on average pay about 13% less than the previous jobs, the coalition says. The good news in all of this though is that prices are falling fast. There are some great Christmas buys out there- provided one has some money to buy them.
It's called the "snow ball effect", maybe the domino effect. The bottom line is that when stuff begins to happen there's not one fix that will take care of it all, in fact that might not any ANY fix at all.
About the Author:
As a spiritual-futurist, I interpret current events in light of possible macro-universal forces at play leading up to 2012, but not limited to it.