Joblessness Hinders Housing Recovery

2010 January 29

The GDP report shows strong economic growth. The United States economy grew at an annual rate of 5.7% in the last quarter of 2009. Although, the economy grew at its fastest pace in over six years at the end of 2009, a sluggish job market is hampering any hopes of sustainable recovery.

It’s often said that unemployment is a lagging indicator of the economy. Will the jobs come back and when?

Job growth is the key to lifting the housing market. Without jobs, homeowners can not make their mortgage payments, that leads to more foreclosures. Foreclosed homes pull down home prices and values. Then, the number of over-leveraged borrowers grow with negative equity on their homes or underwater mortgages.

Housing data showed home sales tumbled after the expected end of home buyers tax credit for boosted real estate transactions the prior month. Congress extended and expanded the tax credit to April 2010.

The housing market is supported by government programs, including tax credit, loan modification, Federal Reserve mortgage purchases. Once government intervention ends, housing market could quickly sink, taking the economy down with it.

Foreclosures is projected to reach 3 million this year, surpassing the record of 2.82 million in 2009, according to RealtyTrac.

Homeowners have such high debt loads, in addition to their mortgages, that any reduction in income, including a job loss, will lead to more foreclosures.

The U.S. jobless rate probably will average above 10% in 2010, while other figures put the unemployment rate at 17%. Employers have cut more than 7 million jobs in the last two years. However, it’s estimated 15 million Americans are without a job.

Obama’s Mortgage Loan Modifications

The Obama administration’s Home Affordable Modification Program (HAMP) is an effort to prevent foreclosures. So far as of end of December 2009, HAMP has resulted in 70,000 permanent loan modifications. The goal is to help up to 4 million mortgage borrowers by 2012.

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