The December jobs report speaks volumes about why the housing recovery is not as robust as it should be, given still historically low mortgage rates and still relatively low home prices. Specifically, the weak job participation rate, falling to the lowest level since 1978, according to the U.S. Bureau of Labor Statistics, explains why so many are barred from home ownership and why others in trouble on their mortgages are unable to save their homes.
More young adults are going back to work, with employment rising from below 75 percent earlier last year to just above it in December. Still, the number is well below where it should be. Wage growth also came in at just 1.8 percent for all of 2013, below the inflation rate, according to the BLS.
“Millennials have a long road ahead: The employment rate of 75.4 percent in December was closer to the low point during the recession, 73-74 percent, than to the pre-bubble normal, 78-80 percent,” noted Jed Kolko, chief economist at Trulia.
The weak job participation rate also provides an answer to what seems at face-value like a puzzling phenomenon: The number of homes in the foreclosure process that actually have positive equity has jumped dramatically in the last year, but the homes are still being lost.
At the end of 2013, 31 percent of all residential properties in foreclosure had some positive equity, according to a new report from RealtyTrac, an online foreclosure sales and data company. That is up from 24 percent just three months before. The gain is due to fast-rising home values.
Homes in foreclosure that do have equity, have on average about 27 percent equity, which is enough to qualify for a refinance that could offer a lower monthly payment. That amount of equity could also allow these borrowers to sell without any hit to their credit, such as happens during a short sale.
“Whether many of these homeowners want to take advantage of these options, or know that they have these options, is less clear, especially given the fact that so many have not yet done so,” added ReatyTrac’s Daren Blomquist.
Why? The trouble is, in order to qualify for a refinance or loan modification, the borrower needs to have a job. There are also thousands of borrowers who have not made a mortgage payment in well over a year. Just because their home suddenly has equity on paper does not mean they can make up all those missed mortgage payments.