Foreclosures Team Up With Unemployment

March 7th, 2008

Foreclosures hit a record last year and this has had a snowballing effect on the employment picture in the economy. Many have become jobless with the real estate market plummeting to all time low levels. The Mortgage Banker’s Association stated that the delinquency numbers, have reached all time high numbers since 1985. The numbers of jobless are also the highest since the last two and a half years. The story is also gloomy for retailers – people are not buying as of before. At the epicenter of the problem is the housing crisis.

The National Association of Realtors provided data that indicated that pending contracts to purchased previously owned houses have not been cancelled. There is skepticism as to whether this means slowing of foreclosures. Mike Larson, real estate analyst of Weiss Research in Jupiter, Florida says that the housing market is stuck in the mud, with too many houses being listed for sale and too few buyers. The economy looks gloomy. His comments as regards the steps being taken to tackle the foreclosure problem is not too optimistic. He opines that ‘The Federal Reserve is trying to light a fire under housing demand’ by resorting to rate cuts. It seems that this situation will continue till 2009.

Seeking safer outlets the investors shifted its focus on US government securities – the prices of which steadily have begun to rise. Stocks are down with Dow Jones industrial average off by more than 100 points recently. The chief economist of Deutsche Bank in New York says that there has been a major shift towards quality. The Federal Reserve data showed that on 6th March 2008, the net wealth of the households in the country fell for the first time since the last five years during the first quarter of 2007. This was because of fall in value of real estate holdings and related stocks, thanks to foreclosures.

Last week saw new applications of jobless benefits tumble by 24,000 – it being much lower than the expected 351,000. But even then the number stood the highest since Katrina attack of 2005. The number on the jobless rolls rose to 2.83 million – showing that workers are finding a harder time to get employed. Only 25,000 jobs were added to the list – a poor showing considering the demand. The unemployment rate is up by 5.0% from 4.9%.

For this foreclosure crisis the sub-prime is held responsible.