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Unemployment Rises and Hopes of a Wide Spread Housing Recovery Begin Falling.

Many of you have been hearing that in some areas of the country, home prices are rising and sales are starting to recover however, it has been my argument that with an unemployment rate above 8%, this recovery is a false recovery brought on by REOs being held off the market for political gain.

A 8.3% unemployment puts us back in the unemployment numbers of February of 2009, per the Bureau or Labor Statistics (see graph below) and if my memory serves me correctly, REO Listings Agents were slamming and jamming. That is, it wasn't uncommon for mega REO agents to be closing a REO a day. Yet, here we are with the same, if not worse unemployment number and REO has dried up much like the unprecedented drought in the Mid-West.

Granted, a 8% (+) unemployment rate isn't good however, it's not the "real" unemployment rate. Keep in mind, that number is only reflective of the people claiming unemployment for the first time and those getting a government paycheck from unemployment insurance. The reality is, many more people have fallen off the unemployment radar because they have exhausted their benefits and are no longer counted however, they do count. The Government does release this "real" unemployment number and it's called the U-6 which as described provides a more complete tally of how many people are really out of work. As of today, this number is 14.9%, according to the Bureau of Labor Statistics.

At a 14.9% U-6 number (Real Unemployment Rate), I have one question....... Where are all the REOs?

It's no secret, the Federal Government is doing all it can to keep people in their homes and as noble a cause that is, it doesn't change the fact, you can't pay a mortgage without income. Many of us in this industry have known for years, the banks, Fannie Mae, HUD, etc.... are holding massive amounts of REO inventory off the market. I understand why, if it was dumped on the market, we would collapse the US economy in a way never before seen but, to not release the inventory in hopes of artificially inflating the market you do more damage in the long run.

So, what damage is done by holding on to these REOs and not letting them hit the market?

Well, I am no economist and I don't play one on television however, I have a working man's knowledge of my industry and can tell you what I have observed. I will focus on one major negative that I see because I don't want this blog to become a book.

1. Paradigm Shift: Back in 2006 / 2007, when you weren't able to make your house payment, you knew that in about 3 months or so, you were going to be evicted and your house was going to be sold at auction. This is no longer the case. The last relocation assistance package I negotiated the man had been living in the home for 52 months without making a payment. This seems to be happening more and more. That is, I am seeing more people living in the home for 15+ months or longer before I am even called out to offer relocation assistance. This increase time that people have to free load causes an incredible shift in how people view foreclosure....or better yet, just paying their mortgage. It causes people to become entitled, lazy and even belligerent or combative about the relocation assistance or ultimately the eviction. They start feeling, thinking and fighting for their "right" to keep their home. They start acting and believing they are owed the home even though they can't pay the debt.

With all of this, where do we go as a country? Who do we look to? As America has done and I believe as we will do, we will look inward. We will realize our mistakes and we will recover, just when that happens, I don't know.

Case Shiller report shows a deceleration in the annual growth rates in 17 of the 20 MSAs. Housing generally leads the economy out of a recession. This time its not, housing is simply suffering. Not only is money tight but job creation is still a big hurt. In some cities, the decline over the last year was quite sharp.

David M. Blitze,chairman of S.&P.’s index committee tells the NY Times that a double-dip could be confirmed before spring. He goes on to say the series is now only 4.8% and 3.3% above their April 2009 lows. Certainly nine cities set new lows, and with the only positive news concentrated in southern California and Washington DC, the data point to weakness in home prices.

S&P sounds dismal, indeed. David Wyss, S&Ps chief economist tells martketwatch that The recovery in home prices has not only stopped, it's going in reverse, that it's going to get worse before it gets better

Some Balance Is Needed

Artificial Stimulus
The tax credit
First, the index to a positive spike due to the tax credit, an artificial inducement to buy. Well it worked, and we saw buyers flood the market. But comparing new data to a spike that doesnt represent normal market behavior, but a artificial spike in home sales due to the tax credit can skew the true picture.

Seasonality
This is the slowest part of the year for home sales and must have something to do with the steep decline

Weather
Could the weather have been worse for the mid west and east coast? Winter is traditionally a poor indicator of market health.

Certainly, this market needs no excuses and Im not second guessing S&P, but lets not lose perspective - winter data is hardly a leading indicator for housing markets and there is more to the story than the data is expressing.

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