No jobs means no housing demand

I have posted the chart on the lack of owner-occupant demand dozens of times to remind everyone that current demand is far weaker than what’s widely reported. But that’s not to say demand will remain weak forever. There is latent demand from two large groups that currently can’t buy homes: the credit impaired and the unemployed.

The millions of former owners who have damaged credit from either a short sale or foreclosure represent a large reservoir of future demand. When these people save for a down payment, wait out any mandatory waiting periods, and regain their credit scores, most of them will chose to buy again despite their previous bad experience with home ownership. For this group, it’s only a matter of time and fiscal discipline. We will start to see more and more of these former owners re-enter the housing market over the next decade.

The other group of potential buyers may be even larger: the unemployed. It’s an old adage that the unemployed don’t buy houses. Actually, during the housing bubble, the unemployed did buy houses using NINJA loans, but the near 100% default rates made those loan programs disappear. In the real world of sustainable housing finance, the ability to repay the loan is important, and a job is necessary to repay the debt. The reported 8.1% unemployment rate reflects millions of unemployed job seekers. However, that does not capture the four million people who, according to the government counting methods, have given up searching for work. These so-called discouraged workers also want jobs, and when the officially and unofficially unemployed go back to work, they represent a significant pool of future home buyers.

America’s hidden unemployed: too discouraged to count

By Lucia Mutikani — WASHINGTON | Sun Sep 23, 2012 11:02am EDT

(Reuters) – When Daniel McCune graduated from college three years ago, he was optimistic his good grades would earn him a job as an intelligence analyst with the government.

With a Bachelor of Science degree from Liberty University in Virginia, majoring in government service and history, McCune applied for jobs at the National Security Agency, the Federal Bureau of Investigation and other agencies.

But after a long hunt that yielded only two interviews, the 26-year-old threw in the towel last fall, joining millions of frustrated Americans who have given up looking for work.

“There’s nothing out there and there probably won’t be anything for a while,” said McCune, from New Concord, Ohio. He has moved back home to live with his parents, who are helping him pay off his college debt of about $20,000.

“I don’t like it, it’s embarrassing. I don’t want to be a burden to my parents,” said McCune, adding that he felt like a high school dropout.

If he had graduated prior to the collapse of the housing bubble, he could have purchased a home and squatted there instead.

Economists, analyzing government data, estimate about 4 million fewer people are in the labor force than in December 2007, primarily due to a lack of jobs rather than the normal aging of America’s population. The size of the shift underscores the severity of the jobs crisis.

If all those so-called discouraged jobseekers had remained in the labor force, August’s jobless rate of 8.1 percent would have been 10.5 percent.

Those 4 million people should be counted. The notion of “discouraged workers” is nonsense made up by the government to make the unemployment numbers look better than they really are. These discouraged workers would start searching again if jobs became available in their area or in their field.

The jobs crisis spurred the Federal Reserve last week to launch a new bond-buying program and promise to keep it running until the labor market improves.

Do you realize the federal reserve has made a public commitment to print money until we regain full employment? Can we really print our way to prosperity?

It also poses a challenge to President Barack Obama’s re-election bid.

The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one has fallen by an unprecedented 2.5 percentage points since December 2007, slumping to a 31-year low of 63.5 percent.

We never had a drop like that before in other recessions. The economy is worse off than people realize when people just look at the unemployment rate,” said Keith Hall, senior research fellow at the Mercatus Center at George Mason University in Arlington, Virginia.

And that’s the very reason the numbers are manipulated. Everyone is so concerned with consumer confidence that they fail to see that a lack of consumers with jobs is the real problem.

The participation rate would be expected to hold pretty much steady if the economy was growing at a normal pace. Only about a third of the drop in the participation rate is believed to be the result of the aging U.S. population.

It isn’t retirement, it’s persistent unemployment.


The economy lost 8.7 million jobs in the 2007-09 recession and has so far recouped a little more than half of them.

Economists say jobs growth of around 125,000 per month is normally needed just to hold the jobless rate steady.

Given the likelihood that Americans will flood back into the labor market when the recovery gains traction, a pace twice that strong would be needed over a sustained period to make progress reducing the unemployment rate.

Last month, employers created just 96,000 jobs. …

The economy is so weak, that we aren’t matching the pace required to keep the jobless rate steady.

… But separate surveys by the Economic Policy Institute (EPI) and Generation Opportunity found little evidence that young people were going back to school when unable to land a job.One deterrent is the rising cost of education and record levels of student debt. About two-thirds of 2012 college graduates left school in debt, owing on average $28,700 in student loans, according to Mark Kantrowitz, publisher of

“Young people dropping out of the labor force to go back to school would be a silver lining if it were true,” said Heidi Shierholz, a senior EPI economist, adding that enrollment had gradually been increasing for decades.

A better trained labor force would be good for long-term wage growth and productivity. However, with school getting so expensive, many don’t see the benefit being worth the price. They may be right.

A Generation Opportunity survey published in August showed a third of young people were putting off additional training and post-graduate studies because of the sour economy.

“This is significant. People are making the decision to put those off because the assurance of a return to investment is not there,” said the non-profit’s Conway, a veteran observer of the labor market as a former Department of Labor chief of staff.

I know a guy who went back to school in 2008. Now that he’s out with his masters degree, he still can’t find a job. He invested a great deal of time and took on a lot of debt, and so far he has obtained no benefit. I’m sure he is not alone.

The persistent unemployment is holding back the economy and the housing market. The only silver lining in this cloud is that these people represent a large pool of potential buyers if they ever go back to work.