America’s Backdoor Layoffs
|April 7, 2009||Posted by Jeffery J. Smith under Progress Report, The Progress Report|
America’s Backdoor Layoffs
Home Prices — Low, But Still No Bargain
Forget low mortgage rates and the buyer’s market. Real-estate prices have a long way to fall. Especially since firings happen much more than officially recorded. If you ever tire of the business cycle and the shenanigans used to disguise it, try geonomics. Meanwhile, we trim and blend seven 2009 articles from: (1) Reuters, Mar 31, on home prices by Pedro Nicolaci da Costa; (2) Reuters, Apr 2, on loan rates; (3) Building Connect, Apr 3, on land values by Joey Gardiner; (4) PBS, Apr 3, on unemployment; (5) Business Week, Mar 29, on layoffs by Moira Herbst; (6) USA Today, Apr 6, on defaults by Kathy Chu; and (7) Wall St Journal, Apr 1, price trends by Brett Arends.
by da Costa, by Reuters, by Gardiner, by PBS, by Herbst, by Chu, and by Arends
- Record drop in home prices keeps US consumers glum
Home prices nationwide have lost around 30% of their value from their peak in 2006, according to the S&P/Case Shiller index, with regional variations making for much steeper declines in places like Florida and Nevada. In the year to January, prices plunged a record 19%.
The Conference Board’s index of confidence barely inched up from February’s all-time low, rising to 26.0. Only 2% of Americans said they intended to buy a home in the next six months, the weakest reading since 1982. Car-buying intentions also fell sharply.
- US home loan rates slide to record low-Freddie Mac
Government steps to reduce borrowing costs take hold.
The average 30-year home loan rate fell 0.07 percentage point in the week ended April 2 to 4.78, the lowest since Freddie Mac began tracking them on a weekly basis in 1971. This rate is 1.10 percentage points lower than in the same week a year ago.
The average interest rate on a 15-year loan dropped to 4.52% from 4.58% the prior week and from 5.42% a year ago. The rate was the lowest since Freddie Mac started tracking the 15-year loan in 1991.
In February housing affordability reached an all-time high.
Five-year adjustable Treasury-indexed hybrid loans averaged 4.92%, down from 4.96 a week ago and 5.59 a year earlier. This rate was also the lowest since it has been tracked by Freddie Mac starting in 2005.
Lenders charged an average of 0.7 percentage point on all of these loan types, unchanged in the week.
- UK Housing land values fall 50%
Land earmarked for housing development has halved in value since the height of the boom. The value of residential development land had slumped by 15% in the last quarter of 2008 alone. Land had slumped the most in Yorkshire and the Humber, recording a 64% fall, the least in outer London, with a 40% drop. During the last quarter of 2008 the biggest loser was central London, recording falls of 33%, after having previously remained resilient to the downturn.
Development land values tend to fall faster than house prices, because it is not possible to cut the construction costs of homes by a large amount, so the majority of the fall in house prices ends up coming off the land value.
- Unemployment Climbs to 8.5% in March
The US unemployment rate at 8.5% marked its highest level since 1983, as employers slashed a net total of 663,000 jobs. If part-time and “discouraged” workers — those who have been unable to find new jobs — are factored in, the unemployment rate would have been 15% in March. Since the recessions official start 2007 December, the economy has lost 5.1 million jobs, with almost two-thirds in the last five months. The Bureau of Labor Statistics also revised January to show job losses of 741,000 that month, the biggest decline since 1949 October.
- America’s Backdoor Layoffs
Missing from the headlines are those referred to as “involuntary” part-time workers. In February, the number of people classified as working part time for economic reasons rose by 787,000, reaching 8.6 million. The number of such workers has risen by 3.7 million in the past year, almost doubling.
Self-employed also aren’t counted as laid off even if they lose most of their income. Many companies had used more such outside workers to cut costs for health-care and retirement benefits. The Government Accountability Office says freelancers make up about 10% of the workforce.
- Consumers fall behind on loans at record rate
As more people become unemployed, they quit paying back loans.
A record 4.2% of consumer loans (home, car, and credit card) were delinquent at least 30 days in 2009 Q4. Another 4% of consumer loans were in default, meaning they’d been written off by lenders.
Historically, consumers pay their mortgages before their credit cards and auto loans. But this trend no longer holds true for all borrowers. Some have pay their credit card and car bills before their mortgages greater than their homes value.
- Home Prices: Low, But Still No Bargain
Over the long term, average home prices have tended to track average earnings. Today’s home prices are actually more expensive, in relation to average earnings, than at the peak of the 1989 property bubble.
When the last property bubble burst, it took about eight years before the market showed really strong signs of revival. The recent bubble was far bigger. And the bigger the bubble, the bigger the crash.
Prices overall have only reverted to levels seen in late 2003. Yet by that stage the bubble was already well inflated. To find pre-bubble prices you have to go back to about 2000 — when values overall were about a third lower than they are today.
Jeffery J. Smith runs the Forum on Geonomics.
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