10 January 2009

Economist's Commentary: January 9, 2009

Quick Take on the Economy: January 9, 2009

By Lawrence Yun, NAR Chief Economist

Employment Situation

December 2008:Payroll jobs were cut by 524,000 and the unemployment rate rose to 7.2 percent.
From the cyclical peak employment 12-months ago, a net 2.6 million payroll jobs have been lost. The economic momentum and the fall in average work hours per employee in the last month suggest another one million jobs could easily be lost in the upcoming months, with the unemployment rate surpassing 8 percent by the end of spring.
Household jobs - based on a survey of people and not companies - showed an even larger decline, at 806,000.
The manufacturing sector took a big hit by shedding 149,000 jobs. Job losses have been ongoing for the past 10 years. Slightly less than 13 million workers are now in manufacturing compared to the peak of nearly 18 million in 1998.
The construction sector is also struggling big time with 101,000 fewer jobs over the month. Now, 6.8 million are in the construction industry, down from 7.8 million at the tail end of the housing market boom in mid-2006.
The education and health care service sectors have been the consistent job creators in the current economic downfall.
The average hourly earnings now stand at $18.36, which is a 3.7 percent bump from one year ago.

Help for Real Estate Short Sales

Realtors® are very frustrated by the long short-sales process in moving those homes that are underwater. The lender approval process takes way too long. Even the basic business courtesy of returning phones calls has been lost.
NAR has been in discussion with Fannie and Freddie to help expedite the short sales process by proactively approving a short sale if it is within parameter guidelines, even before a buyer is found.

Mortgage Rate Cram-Down

It is a near sure thing that a mortgage cram-down, where judges would have the authority to change mortgage rates and terms in bankruptcy filings, will be added to the stimulus package because there will be no veto threat from the incoming Obama White House.
Generally, any tinkering with mortgage rates by judges will lead to higher future mortgage rates as lenders will account for this risk. However, some of the preventable foreclosures that will lessen the pain for families and that will result in less of a financial loss for lenders are not being worked out. Just by giving judges this authority, many lenders will voluntarily be more aggressive in modifying some mortgages that in the end can be a win-win for the families and banks involved. Citigroup apparently understands this reasoning and has now come out in favor of the cram-down.

What does today's data mean for REALTORS® and consumers?

We are NOT (NOT) close to the Great Depression of the 1930s, when the unemployment reached 25 percent, but comparisons to that era are being thrown into the discussion. We are, however, in the midst of a deep recession with overall economic activity and associated income expected to contract by 5% to 6% in the first quarter.
Economic stimulus is clearly needed to reverse this downturn. Yet there should also be an appropriate discussion on the size and structure to assure stimulus is not wasted by disinterested government bureaucrats. The stimulus in the end, however, must contain real estate focused incentives such as a homebuyer tax credit and efforts to push and keep mortgage rates at historically low levels. There will be no sustainable economic recovery without a housing market recovery.
Home sales rose in past economic recessions when mortgage rates declined. Those with jobs, who comprise over 90 percent of the workforce, do respond to incentives.
A silver lining in the dark economic cloud is that many of the major innovations arise in times of recession. Entrepreneur minds sharpen during challenging times.
Many Realtors® have simply given up on getting up on short sales. Perhaps it is time to rethink, given some efforts to shorten the process and because more home listings will require short sales due to continuing home price declines.

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