Unemployment and the Housing Sector: Outlook for 2011

What is the true indication of a boisterous economy? The critical factor is unemployment. While the first wave of foreclosures was driven by unsustainable home prices and high risk monetary and underwriting practices, the second wave of foreclosures is being driven by unemployment. The current estimate is that 1 foreclosure occurs for every 6-10 jobs lost.

What does this mean for the short term housing outlook? The unemployment figures, in the near future (2011-2012), will drive high levels of foreclosure. Activity is spreading in the 10 states with highest unemployment rates, with 50% of foreclosure activity occurring in those 10 states. ARM resets could trigger a third wave of foreclosures, coupled with strategic defaults as homeowners get weary of the ongoing struggles with declining property values. Job creation must be the lynchpin of a strong economy, and until we have jobs, and consumer confidence, we will not have the growth in the housing sector and true economic recovery.

As unemployment has spread, foreclosure has spread with it. In some areas, it is taking 800 days to complete a foreclosure. (average is currently between 300-400 days) That leaves plenty of time for homeowners to execute a short sale, rather than foreclosure. In a normal year, foreclosures are at 5%. Last year, foreclosures were at 28% nationally. 2011 looks to be closer to 30%.

Recovery looks to be uneven- more rapid and stronger in some areas than others- and with ups and downs throughout the period. The most likely scenario is that shadow inventory will continue to slow down the housing recovery. Current numbers are: 1.0 Million REO’s (700,000 not listed for sale and held as “shadow inventory”); 1.2 Million homes currently in foreclosure; 5 Million homes in some stage of delinquency. The most likely scenario is for these homes to make it to the market very gradually over the next 3 to 4 years, preventing another crash in home prices. All of these factors result in a long, slow, flat recovery.

The move up market will more than likely be the last market to recover. The fastest growing segment of the foreclosure market today is the luxury market. Beverly Hills alone has shown a 700% increase in distressed properties in the past 18 months.

Currently, less than 50% of people in foreclosure are upside down on their mortgage. Many are in the throes of foreclosure due to unemployment. Worse, 7 out of 10 properties that go to foreclosure NEVER WERE LISTED as a short sale. This is a lost opportunity for the homeowner to get real help in getting out from under foreclosure.
60% of homeowners often erroneously believe that the first foreclosure notice means that they have no time or options. 13% of clients abandon the home immediately. Then, when the lender attempts to contact that homeowner with other options (short sale or cash for keys), the client either doesn’t respond, or never receives the communication.

When the real estate market shifts, it can create tough situations for homeowners. If you know someone that is struggling with home ownership because of a job loss or other life-changing event, please let them know I may be able to help. We are all in this housing crunch together, and as a real estate professional, it is my job to know what types of solutions are available for people that may be in a difficult position.

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