Bleak Economic Forecast
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. [...]
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."
Rising unemployment could 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.
Another complication: Banks are less likely to lend when unemployment is high. [...]
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.
Homelessness rising as economy slides
Homelessness and demand for emergency food are rising in the United States as the economy founders, a report said on Friday, and homeless advocates cautioned many cities were not equipped for the increase.
A survey by the U.S. Conference of Mayors showed that 19 of 25 cities saw an increase in homelessness in the 12 months to October, while four reported a drop and two cities lacked enough data for conclusive results.
On average, the cities in the survey saw a 12 percent rise in homelessness, the report said. Although the results do not cover all U.S. cities, homeless advocates said they were in line with anecdotal evidence nationwide.
Homeless advocates say families are flooding homeless shelters across the United States in numbers not seen for years, camping out in motels or staying with friends and relatives following foreclosures on tens of thousands of homes during the worst financial crisis since the Great Depression.
U.S. States Cut Spending for First Time Since 1983
U.S. state governments are reducing spending for the first time since 1983 as the recession erodes the tax collections that pay for schools, health clinics and other local programs, a national survey found.
The budgets passed by states cut spending from their general funds, the pools of money not earmarked for specific purposes, by $380 million to $689 billion in the current fiscal year, which began in July for all but four states, according to a survey by the National Association of State Budget Officers released today.
The decline has only deepened since the budgets were set because of rising unemployment, consumer spending cutbacks and the loss of more than $7 trillion from the U.S. stock market this year. That has dealt a blow to sales and income tax collections and forced 22 states to cut $12.1 billion from the spending plans enacted for the current year so far, the report found.
“The situation is bad and unfortunately it will continue to get worse,” Scott Pattison, executive director of the budget group, said during a conference call with reporters. “To have an actual nominal decline in spending is extremely significant, even in the downturn in the early 1990s we didn’t have a figure that bad.”
Bleak fiscal 2009 seen for states: report
States will experience a bleak fiscal 2009, a new report said Monday, with spending expected to decrease for the first time since 1983 and budget cuts to follow in coming fiscal years.
"Given the continued stall in credit availability, rising unemployment rates and increasing demand for state services such as Medicaid and welfare as people lose their jobs, the fiscal outlook for states is likely to get worse," said Raymond Scheppach, executive director of the governors association. He said the decline in the housing market has impacted state revenues, especially corporate and sales tax revenues. Read the report.
State spending growth slowed for most states during fiscal 2008, the report found, and 13 states reduced their enacted budgets, by $3.6 billion. So far in fiscal 2009, 22 states have cut their enacted budget by $12.1 billion. Another five are forecasting cuts.