Jobs and Prime Mortgages – the reason this won’t be done soon…..
by Tom on May 26, 2009
in Market Musings, house prices
Here’s how the equation works:
Unemployment is rising and anticipated to get worse.
As people are losing their jobs, they are having a harder and harder time paying their mortgage payments.
So we’re going to see more and more foreclosures.
As we see more and more foreclosures, we’re going to see growing inventory of homes for sale.
As we see more and more homes for sale, we’re going to see additional stress on housing prices.
So, while financial catastrophe on an international basis may well have been avoided, (see previous post about Paul Krugman) but that doesn’t mean that the housing market is going to be out of the woods soon.
Tom Vanderwell
Job Losses Push Safer Mortgages to Foreclosure – NYTimes.com
As job losses rise, growing numbers of American homeowners with once solid credit are falling behind on their mortgages, amplifying a wave of foreclosures.With many economists anticipating that the unemployment rate will rise into the double digits from its current 8.9 percent, foreclosures are expected to accelerate. That could exacerbate bank losses, adding pressure to the financial system and the broader economy.Economists refer to the current surge of foreclosures as the third wave, distinct from the initial spike when speculators gave up property because of plunging real estate prices, and the secondary shock, when borrowers’ introductory interest rates expired and were reset higher.
“We’re right in the middle of this third wave, and it’s intensifying,” said Mark Zandi, chief economist at Moody’s Economy.com. “That loss of jobs and loss of overtime hours and being forced from a full-time to part-time job is resulting in defaults. They’re coast to coast.”
Those sliding into foreclosure today are more likely to be modest borrowers whose loans fit their income than the consumers of exotically lenient mortgages that formerly typified the crisis.
Economy.com expects that 60 percent of the mortgage defaults this year will be set off primarily by unemployment, up from 29 percent last year.
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