When key sectors in our economy intersect, what happens? Residential real estate market + unemployment numbers = ?
In an excellent post on Dr. Housing Bubble today, we see the following information: a tad under 4 million home mortages are delinquent (people are living rent-free, or as some say, squatting), in their own homes, some for as long as two years.
One analyst thinks about $50 billion is not going into paying off mortgages, and therefore, is free to circulate elsewhere in the economy. IOW, a private stimulus package that will disappear as foreclosures continue and people have to pay rent, not mortgages.
On the unemployment front, with several million people dropping out of the labor force, the jobless rate appears to be going down, but both the jobless and the not-looking AREN’T WORKING. That means they aren’t earning a taxable salary, may be picking up unemployment benefits (soon to run out), or are on some kind of welfare program. Many have gone into the gray (legal, but all nonreported cash transactions) market. [The black market consists of illegal transactions.]
IFO thinks it is hard to tell how this will turn out, contrary to many analysts. If housing prices go down due to lack of demand(no sales and doubling up in existing housing), the economy could actually benefit. Once housing prices become affordable, the RE market will stabilize and more people will get jobs.
But if housing prices stay high, as most analysts, politicians, existing homeowners and real estate agents desire, the RE market will not only continue to be unstable, the economy could go bad again, as high rents the squatters will now have to pay take that $50 billion out of the rest of the economy and return it to the banks and rentiers.
So, you decide. Do you think these trends move or down, and
when and where will they intersect? Now place your
your investments accordingly.