Job loss is the main reason among delinquent prime borrowers in 2009. Between January and June 2009, unemployment, or underemployment, was the #1 reason for 60% of prime and Alt-A borrowers, with another 20% saying that debt was their main problem and 12% saying that illness and death in the family was the cause of their default. By the first week of this month it was reported that the unemployment rate spiked to 10.2%, which was up from 9.8% in September, making it the highest level in 26 years.
What is different between the crisis of 2009 and the crisis that peaked during these same months in 1982 when unemployment reached 11%? Well, as one who lived through that time and was also working as a Realtor, I can tell you that there were no drastic decreases in home values, as seen during this current crisis; mostly due to the high subprime loan default rates.
Obama’s administration is holding the interest rates at historic low-levels and helping people to get into homes with his tax-credits and help with their defaulting mortgages, but is this going to do any good?
In 2005 the share of subprime loans serviced in the U.S. that defaulted was half of all the defaults and foreclosures.
The share of subprime loans serviced was 14% of the total number of loans, in 2007, but at the end of the first half of 2009 it was only 11% of the total.
At the same time 60% of foreclosures were subprime in 2007, but only 40% of the number of foreclosures in 2009 were subprime loans.
Meanwhile prime and Alt-A loans reached to 60% of the total number of foreclosures started in the first half of 2009, meaning that the conventional market had more foreclosures than the subprime market and most economists believe that the unemployment rate will continue to rise next year at least during the first quarter, which only adds to the effect of losses in housing prices that have seen a cumulative decline of almost 20% since mid-2006 but, starting in March of this year, home prices have actually risen but from where? Of course they have risen from comparable sales stemming from foreclosures and (long) short sales.
As long as we have an unusually high rate of unemployment, I personally believe, we will continue to have home delinquency and, as you can see from my research above, not just subprime but also Alt-A and option adjustable-rate mortgages.
If investors come back to the real estate market, and the rates will never be lower, I believe we have a chance to begin an upsurge of employment, as real estate is an enormous market that encompasses so many trades and skills that it cannot fail to have a huge impact on the economy. Now is the best time I have ever seen to get into the real estate market and I strongly encourage everyone to invest in a proven and unfailing investment, housing, and that includes me. It's now or never for many and now is the time; the prices are not going any lower. What have I invested in this year? Ah … well … the truth is I am … yup … still lookin’ … but hopeful; I’m hopeful that I’ll find just the right investment and I can guarantee you that it will be in real estate and, besides helping myself, hopefully, it will help the economy and help unemployment go down, instead of up.
May our friends accept us, trouble neglect us, angels protect us and heaven accept us.