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As the unemployment rate continues to grow it is hitting an increasing number of people who had prime mortgages. The result is a huge increase in foreclosures among primes. In the first three months of the year, prime fixed-rate loans accounted for nearly half of the increase in foreclosure proceedings, according to the Mortgage Bankers Association. “At the end of the fourth quarter, 2.4% of prime mortgages were seriously delinquent, more than double the 1.1% at the end of March 2008, according to a report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision.”
Some folks seem to believe that the unemployment rate will soon peak at 10%.
This prediction based on the idea that “the worst of the declines [in employment] are behind us.” Another reading of the numbers says that we will be seeing the unemployment rate increase at a slower rate — which is a far cry from peaking. This leaves out two very scary facts.
- This is the fake unemployment rate and is based just on unemployment claims. The real unemployment rate can be found in the U6 numbers which counts people who are now “under-employed” or who have given up looking. It is currently at 16.4 percent and, as Mad Mike the Biologist points out, it could easily hit 20%.
- Even more troubling is the long term unemployment rate. “The government says that 4.5 percent of the work force has been out of work for 15 weeks or more. The worst previously seen — at least since 1948, when the government began counting people that way — was 4.2 percent, in December 1982.”
Put those together and you get the actual employment picture. More people are taking longer to find new jobs and many are having to take part-time jobs. This skews the stats and lets people crow about an improving jobs market. Those crowing are clearly not among those who are looking.
As Dirk van Dijk of Zacks Investment Research puts it:
People earning less money are going to be less likely to pay those once prime mortgages adding to the number of foreclosures further decreasing home values which makes consumers even less likely to spend which means further decreases in demand which means further layoffs. Please point out if I have missed something here. Please.
Meanwhile the Obama administration continues the Bush policy of seeking to rescue the people and firms who got us into this mess in the first place. Go team go!
Constantine von Hoffman is a veteran business journalist and social media consultant. He write the blog CollateralDamage, a satirical look at marketing and business.
Last 3 posts by Constantine von Hoffman
- The home price increase that isn’t - July 28th, 2009
- Why the increase in housing starts means trouble - July 21st, 2009
- Builders, Realtors attack new regs on home appraisal - July 14th, 2009
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