The Job Loss Myth
It's commonly maintained that home price declines could only take place in the face of widespread job loss. There is something to this idea, but it is not precisely correct. In truth, it is forced sellers who put downward pressure on home prices.
These are the owners who need to accept whatever price they can get for their homes. Absent forced sellers, home prices will likely hang tough because sellers won't have any good reason to accept lower bids. But when the number of people who have to sell grows too much in comparison to the number of willing buyers, prices start heading down.
It's certainly true that unemployment can increase the ranks of people who need to sell their homes, which in turn leads to price declines. Where the conventional wisdom goes wrong is assuming that unemployment is the only possible cause of forced selling.
Kelly Bennett's recent piece on rising default rates shows that despite positive job growth, the number of San Diegans who are unable to make their mortgage payments is growing fast. It should come as no big surprise to readers of this column that the culprit is not unemployment at all, but rather the increasing frequency with which loan payments are rising beyond people's ability to make them.
Analysts focusing solely on job growth are missing the real action. The widespread use of adjustable and exotic loans suggests that mortgage resets, not employment, could be the bigger cause of forced selling this time around.
-- RICH TOSCANO
|
PRINT 
E-MAIL STORY
SHARE
FACEBOOK
REDDIT
NEWSVINE
DIGG
DEL.ICIO.US
BLINKLIST
