Voltron says: they said that housing prices never decline without unemployment increasing first. Well look out below . . .
Job Losses and Surge in Oil Spread Gloom on Economy
The weak jobs report, coupled with a staggering rise in the price of oil — up a record $10.75 a barrel to more than $138 — unleashed a feverish sell-off on Wall Street, sending the Dow Jones industrial average down nearly 400 points. The dollar plunged against several major currencies.
Investors’ recent hopes that the
For tens of millions of Americans struggling to pay bills, the jobs report added an official stamp of authority to a dispiriting reality they already know: A deteriorating labor market is eliminating paychecks just as they are needed to compensate for the soaring cost of food and fuel, and as the fall in house prices hacks away at household wealth and access to credit.
“It’s unambiguously ugly,” said Robert Barbera, chief economist at the research and trading firm ITG. “The average American already knows that gas prices are up a ton and it’s really hard to find a job. Sally and Sam on
About 1 in 11 Mortgageholders Face Loan Problems
The first three months of 2008 marked the worst quarter for American homeowners in nearly three decades, according to the report, issued by the Mortgage Bankers Association. The rate of new foreclosures and past-due payments surged to their highest level since 1979, when the group first started collecting the data.
All told, about 8.8 percent of home loans were past due or in foreclosure, or about 4.8 million loans. That is up from 7.9 percent at the end of December. (About a third of American homeowners do not have mortgages.)
Delinquency and foreclosure rates started rising from historically low levels in late 2006 and have picked up speed in nearly every quarter since. Analysts say at first past due mortgages represented mostly high-risk loans made to borrowers with blemished, or subprime, credit. Now, as the economy has weakened and home prices have fallen in many parts of the country, homeowners with better loans are also falling behind.
Economists worry that a big loss of jobs in the coming months could drive default rates much higher. The Labor Department will release its report on the job market for May on Friday.
“It’s not going to help the housing market out at all if you have a loss of jobs,” said John Lonski, chief economist at Moody’s Investors Service. “When employment’s contracting, that makes it all the more difficult to sell your home at an attractive price.”
Though defaults are rising in many places, it is worst in areas where home prices soared in recent years or where the local economy is now struggling.
“The problems in
Midwestern states like
About 9.7 percent of loans in five Midwestern states were past due or in foreclosure in the first quarter, down from 10.5 in the fourth quarter.
“This decade has been brutal on the industrial economies of the
Defaults are highest for adjustable-rate mortgages — loans that promised a low, fixed-interest rate for the first few years. But people who took out such mortgages are falling behind even before those loans reset to a higher adjustable rate. Analysts say that reflects the fact that those mortgages were popular among investors, buyers who made small or no down payments, and those who did not provide proof of their incomes.
Falling home prices are also contributing greatly to foreclosures. Homeowners who owe more on their loan than their homes are worth are more likely to default if they encounter financial distress, said Robert Van Order, an adjunct finance professor at the University of Michigan.
In past housing downturns like the one in the early 1990s, he said, housing prices did not fall nationwide and even in local markets they fell much more slowly. So far, home prices have fallen about 16 percent from their peak in the summer of 2006, according to the Standard & Poor’s/Case-Shiller index. Economists at Lehman Brothers expect the decline to bottom at 25 percent.
“What that means now is people don’t have that equity cushion as they get into trouble,” said Mr. Van Order, who was once chief economist at Freddie Mac. “The incentive to beg, borrow and steal is not there.”
By many measures the job market is not falling apart; the unemployment rate was 5 percent in April. But these are challenging times even for those who have not lost jobs with gas prices at $4 a gallon, economists said.
“Wage increases are not keeping pace with inflation,” said Bernard Baumohl, managing director of the Economic Outlook Group. “That really puts a lot of pressure on households to make some very serious financial decisions.”
The surge in defaults has been challenging for mortgage servicing companies, which find it hard to keep up with the growing backlog of loans awaiting foreclosure, analysts say.
Some mortgage servicing firms appear to be holding off because lawmakers in Congress are talking about a plan to refinance up to $300 billion in loans using the Federal Housing Administration, Mr. Youngblood said. The discussions are “giving servicers hope of a better solution for many borrowers,” he said.
In states like
Dean Williams, chief executive of the auction firm Williams & Williams, said mortgage companies are most eager to hire his firm in markets that have a “rapidly and constantly increasing pile up” of homes.