High joblessness fuelling foreclosure crisis, says study
(BOSTON) Job growth will be the key factor in whether the US real estate market can extend a recovery after the end of the federal homebuyer tax credit, according to a Harvard University study.
High unemployment is fuelling the foreclosure crisis and discouraging the household formation that drives property demand, according to the State of the Nation's Housing report issued yesterday by Harvard's Joint Center for Housing Studies.
The weak labour market resulted in people 'doubling up', or sharing residences, rather than buying their own home, the report said.
'What happens with jobs will matter the most to the strength of the housing rebound,' said Eric Belsky, executive director for the centre in Cambridge, Massachusetts. 'If employment growth surprises on the upside or downside, housing numbers could too.'
The US unemployment rate dropped to 9.7 per cent last month from 9.9 per cent in April, the Labor Department said on June 4. For all of 2010, it probably will be 9.6 per cent, the highest for any year since 1983, according to the average estimate of 82 economists polled by Bloomberg.
The homebuyer tax credit of as much as US$8,000 required buyers to have a signed contract by April 30 and close on a property by July 1.
The credit resulted in one million additional home sales between February 2009, when it began, and its expiration this year, according to Lawrence Yun, chief economist of the Chicago-based National Association of Realtors.
Consumer confidence now needs to improve for the market to sustain itself, he said in an interview.
The percentage of consumers who planned to buy a home in the next six months fell to 1.9 per cent in May after touching a seven-month high of 2.8 per cent in March, the New York-based Conference Board said in a report last month.
'It comes down to whether consumers perceive that the market has bottomed or if they continue to wait,' Mr Yun said. 'If they wait, it pushes the market down and becomes a self-fulfilling prophecy.'
Mounting foreclosures are another headwind for a real estate recovery, according to the Harvard report. There were 2.1 million loans in the foreclosure process in the first quarter, almost quadruple the number from three years ago.
'The foreclosure trend is going to get worse before it gets better,' Thomas Lawler, an independent housing consultant in Leesburg, Virginia, said in an interview.
'The biggest risk for housing is that you'll see more foreclosed homes hitting the market and not have an offsetting rebound in household formation triggered by a recovering jobs market.' - Bloomberg
Source: Business Times, 15 Jun 2010