Unemployment Rate Threatens Mortgage And Housing Markets

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The unemployment rate hitting an unexpected five year high at 6.1 percent today is not the worst news. There is much more ominous news on the long-term unemployment rate which endangers the housing and mortgage markets.

Unemployment Rate Explained

The real dangers in the unemployment rate reported by the BLS today is not the 84,000 jobs lost in August creating the 6.1% figure. It goes deeper than that when start to dig a little.

The BLS report also states,

“In August, the number of long-term unemployed (those jobless for 27 weeks or more) rose by 163,000 to 1.8 million, an increase of 589,000 over the past 12 months.”

The Long-term unemployed figure is the one folks should be concerned about. Dirk van Dijk of Zacks.com characterizes the long-term unemployment statistics this way,

“Outside of official recessions, you never see a year-over-year increase in long-term unemployment of over 20%, and we are now north of 50%. A 9.9% increase in a single month is not a good thing.”

These folks cannot buy anything and therefore cannot participate in our consumer based economy since their unemployment checks have run out.

A person without a job for over half a year is also unlikely to get one. Folks without jobs can’t refinance their home or qualify for a mortgage to buy one. With housing inventories climbing we need new home buyers to buy up this oversupply. Folks without jobs for extended periods take big hits to their credit scores, so not only can they not get a mortgage today, it is a long shot for them to get a mortgage in the future.

Long-term unemployed people should they own a house currently are also prime candidates for foreclosure. More foreclosures is a threat to home values and not what the economy needs right now.

The base unemployment rate is bad news for sure, but the long-term unemployment rate is extraordinarily bad for the real estate, mortgage, and banking sectors when those sectors can least afford a drop in demand for their products and services.

Good Luck!