Housing Markets Won’t Recover Until Employment Does

Excerpted from Housing Monitor: Job Loss is Job Loss

Splinters of good news spurring optimism and a broad market rally over the past few months are also surrounded by various weak indications that the U.S. economy is not quite on a path of sustainable recovery-despite what is perceived by the capital markets. For example, as news across the pond pointed to the end of a recession in France and Germany on Thursday, another dip in retail sales (a monthly decline of 0.1% for July, leading to a 9% y-o-y decline) on top of a record number of homes receiving a foreclosure filings in July reminded us that we are still surrounded by a very weak economy. More importantly, the July labor report continued to indicate a bleak employment landscape in our opinion.

As various housing indicators continue to come in ahead of expectations, we remain primarily focused on the employment situation as the principal driver of the housing markets-affecting both demand and supply. Unemployed consumers can not buy homes, and protracted unemployment makes it difficult to service mortgages which can lead to forced sales or foreclosures, events that add to the current high level of unsold home inventory.

While low home prices, a large supply of foreclosures, various government interventions and low mortgage rates may make buying a home more attractive, rising unemployment and stricter lending standards continue to deter any significant rise in demand.

On top of the optimism spurred by various home sales and price data that have come out over the past month, the unemployment report for July did show some “better-than-expectedâ€