California foreclosure blog


New year, new focus: it's job stability, stupid

Happy (?) New Year everybody.

First off, a toast: here's to getting out of the last decade. We had multiple bubble market bursts (lest we forget the dot-com burst of 2000-2001), and the US entered the world of post-terrorism (in)security. I say good riddance to a stinker of a decade. You may be walking wounded, but hey, if you're around to read this, then the bad economy hasn't killed you.

As the day to day grind of this economy continues, people seem to be weary. Ask your friends, colleagues and loved ones whether they are tired from worrying about their job, or being able to afford to keep a roof over their heads or pay for their kids' college. More likely than not, you'll hear similar accounts that reflect how the economy is going off Wall Street.

Rather than bore and depress you with updated foreclosure figures (which are now easy to find online), I want to focus on a root cause of the growing and extended foreclosure mess: unemployment. In 2009, more than half of all foreclosures in California were caused by employment income loss. And given the current employment outlook for most Californians, this trend will continue to get worse before it gets better.

One note to clarify the term "unemployment": while we get "official" unemployment figure announcements from the Bureau of Labor Statistics, the number reported is usually the "U-3" unemployment figure, which only counts those who are out of work but who have looked for work in the past 4 weeks. This number is artificially low, because it ignores anyone outside the definition. This excludes underemployed people in temp jobs, or working part-time because they can't get full-time work, and anyone out of work who hasn't actively looked for work in the past 4 weeks (maybe because their entire industry evaporated and now they need time to develop new marketable job skills).

A more accurate (and much higher) unemployment figure, called the U-6, is available from the BLS. The U-6 number includes the other categories of unemployed and underemployed people.

California's U-6 number at the end of the third quarter of 2009 (the most recent data available) was a whopping 19.6%. To put this in perspective: about 1 in 5 non-military, non-encarcerated people of working age in California are either out of work, or working less than they need to work so they can afford the things they need.

When we pause to consider that even the U-6 number does not include people in full-time work who would like to find different full-time work, we can realize how important the job market is for working people. Simply put, we do not have a robust job market, regardless of a person's education level or experience in their field. This fact has a profound impact on most working people's lives, because it means that many people are trapped in their current jobs. Who's going to quit their job in this economy? It's not like a person can just get another decent-paying job right away. And for people with health coverage through their jobs, the outlook is even more scary: what if the new job doesn't offer benefits?

So here's the bottom line when it comes to California's housing market: despite recent market manipulation by banks (who have intentionally kept thousands of their REOs off the market to push prices higher - we'll see how long they can keep that charade going), and the first-time homebuyer's tax credit, people just won't buy a house when their employment situation is sketchy at best. In fact, job stability is so important that lenders have started looking at a borrower's employer, and will refuse to loan if the borrower's employer is deemed likely to lay off workers. And as far as housing values go, there are 2 real indicators of value: (1) average household incomes (which are decreasing thanks to unemployment), and (2) whether the buyer's lender is willing to fund the loan at a given price (which has been a real deal killer in California for the past 2 years).

As to the job market and the foreclosure crisis: it will get much worse before it gets better. The last forecasts from back in October estimate that California's job market will not improve until some time in 2013. Even if the forecast is off, the trend is clear: it will be awhile before our job market recovers.


Comment balloon 2 commentsJason Buckingham • January 06 2010 08:25AM
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