Of all the various factors that have and will continue to undermine both the health of the nation’s housing markets and that of the overall macro economy, unemployment looks as if will soon take center stage.Clearly there are still more home sales and price declines coming, more Fannie Mae Freddie Mac driven fallout and more credit market turmoil, more bank failures but all these factors may pale in comparison to the personal financial stress, particularly foreclosures, coming as a direct result of sharply rising unemployment.
Of course, the economy is a massive feedback mechanism often making it virtually impossible to truly determine cause and effect but I think it’s safe to assume that if unemployment rises, and worse yet stays elevated for a prolonged period, foreclosures will rise as a result.
To get a sense of what’s occurred to date I have plotted the “Total” unemployment rate against the Fannie Mae “Seriously Delinquent” rate normalized to a base of 100 and then added a ratio of unemployed individuals to delinquency berths (i.e. the number of unemployed individuals per each serious delinquency).
Using the Fannie Mae “seriously delinquent” rate should provide a fairly reasonable estimate of the current state of delinquencies as their rate includes foreclosures and delinquencies and their portion of the mortgage market is pretty large but a more complete series would be the Mortgage Bankers Association quarterly data but unfortunately I don’t have that data.
So what we see below (click for larger image) is that starting in early-to-mid 2007 there was a abrupt increase in the rate of foreclosure (that still continues to accelerate) while home prices declined significantly and unemployment steadily rose.
Also note that the ratio of unemployed individuals to instances of “serious delinquency” has been declining steadily since mid 2007 possibly indicating that as unemployment climbs and the housing market slumps there is a higher conversion rate of unemployed individuals to delinquency (i.e. it takes less unemployed individuals to generate a single instance of serious delinquency).This will be an interesting ratio to watch as it’s hard to say where it could bottom out… possibly even 4 indicating 1 instance of serious delinquency for every 4 instances of unemployment.
