WASHINGTON — Relentlessly rising unemployment is triggering more home foreclosures, threatening the Obama administration’s efforts to end the housing crisis and diminishing hopes the economy will rebound with vigour.
In past recessions, the housing industry helped get the economy back on track. Home builders ramped up production, expecting buyers to take advantage of lower prices and jump into the market. Not this time.
These days, homeowners who got fixed-rate prime mortgages because they had good credit can’t make their payments because they’re out of work. That means more foreclosures and falling home values.
The initial surge in foreclosures in 2007 and 2008 was tied to sub-prime mortgages issued during the housing boom to people with shaky credit.
That crisis has ebbed, but it has been replaced by foreclosures tied to the recession.
Unemployment stood at 9.5 per cent in June and is expected to rise past 10 per cent. The last time the economy was mired in a recession with such high unemployment was 1981 and 1982.
But the home foreclosure rate then was less than one-fourth what it is today. Housing wasn’t a drag on the economy, and when the recession ended, the boom was explosive.
Today, the real estate market is still saturated with unsold homes and homes that sell below market value.
“It just doesn’t have the makings of a recovery like we saw in the early 1980s,” says Wells Fargo Securities senior economist Mark Vitner, who predicts mortgage delinquencies and foreclosures won’t return to normal levels for three more years.