Last month, there was finally some good news on the jobs front, as the unemployment rate fell to 8.6 percent and the economy created 140,000 private sector jobs. However, the continued slow-burning crisis in housingcould easily short-circuit any burgeoning labor market recovery, as the Wall Street Journal detailed today:
Some economists fear the continued slump in housing could short-circuit the recovery in jobs by making it harder for Americans to relocate to find work.
In theory, as the economy improves, people tend to relocate from places where jobs are scarce to areas where companies are hiring…While some relocation continues, economists believe mobility overall has been muted in part because of the housing bust.
Low home values have made it much harder for Americans to move because selling a home is so difficult. That is especially true for the 10.7 million Americans—or 22% of homeowners with a mortgage—who owed more than their homes were worth as of the end of September, according to figures from real-estate firm CoreLogic.
According to work by Prof. Joseph Gyourko of the University of Pennsylvania’s Wharton School, homeowners who are underwater — meaning they owe more on their mortgage than their home is currently worth — are 30 percent less likely to move than non-underwater borrowers. So the housing crisis is locking people in place, even if moving could help them find a job and increased mobility could alleviate the unemployment crisis.
Borrowers being stuck underwater is bad enough, but adding to the bad news is the fact that, after slowing down their foreclosure processes to deal with the fallout from the foreclosure fraud scandal, banks have picked it back up, with foreclosure jumping 21 percent last quarter. And there’s little reason to believe things are going to get much better in 2012, as scheduled foreclosure hit a nine-month high in November, meaning a slew of foreclosure is right around the corner. Continued foreclosures will drag home prices down even further, sinking those already underwater down even deeper, in a vicious cycle that will weigh down the wider economy.
This blog originally appeared in ThinkProgress on December 28, 2011. Reprinted with permission.
About the Author: Pat Garofalo is Economic Policy Editor for ThinkProgress.org at the Center for American Progress Action Fund. Pat’s work has also appeared in The Nation, U.S. News & World Report, The Guardian, the Washington Examiner, and In These Times. He has been a guest on MSNBC and Al-Jazeera television, as well as many radio shows. Pat graduated from Brandeis University, where he was the editor-in-chief of The Brandeis Hoot, Brandeis’ community newspaper, and worked for the International Center for Ethics, Justice, and Public Life.