On Friday, the government unemployment report proves a housing crisis created recession is upon us. A housing crisis triggered recession, sadly, I’ve been predicting for years.

This new unemployment report showed Americans out of work for at least six months (called long-term unemployed) increasing - attaining levels more indicative of recession than a “soft landing” or economic “slow down”.

This is really bad news for those optimists hoping to escape a recession in favor of a “soft landing”. Many pundits (usually paid economists for home building, mortgage banking, and real estate industry lobbies) have pointed in the recent past at strong employment as support for their optimistic take on our economic future.

They must re-think their positions now. And so must the Fed.

This report showed the long-term unemployed number was up 21% year over year at 1.4 millions American workers. The media wanted to report the overall employment rate had dropped from December 2007 to January 2008 from 5% to 4.9%.

Why does the mainstream media always focus on the wrong data? I’ll never figure it out.

Unemployment Contributes to Current Housing Crisis

It’s the long-term unemployed who can’t spend money, keep their home from foreclosure, or borrow money. And this is where the current housing crisis comes in.

If you are unemployed for more than six months you’ll most likely lose your home, once you’ve lost your home, you contribute to the housing crisis. A bigger housing crisis leads to more long-term unemployed since the housing sector is responsible for about 3% of our economy making recession inevitable.

Current Housing Crisis Contributes to Unemployment

Also the current housing crisis in circular fashion contributes to unemployment in that one is less likely to move to take new employment if it means selling the family home at a loss.

Picture the software designer working in Denver who gets laid off. He finds a job in California, but realizes his home is underwater by $25,000. To take the new job he’s have to sell his home at a huge loss, so instead, he’ll keep slugging it out in the Denver job market. The longer he waits, the more underwater his home becomes, so when 6 months of employment rolls around, it becomes even harder to leave should he be lucky enough to find another out of state job offer.

What Should You Do Now That You Know?

1. Don’t wait to sell your home. The housing crisis will only get worse over time.

2. Put 6-12 months of living expenses in a savings account should you experience a job loss.

3. Take employment where it’s offered even if that means foreclosure or selling at a loss. Short selling is now not taxable, so work with your lender to take less to avoid foreclosure and not get trapped into long-term employment.

In essence, you’ll need to get back into the work force at all costs…income is more important than home ownership or credit rating.

Good Luck

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