In the social circles that I often move in and amidst the cacophony of sounds one hears in most establishments that serve adult beverages , many individuals upon finding out what I do for a living ask me “when is the unemployment rate going to fall?” After giving my usual two handed speech which leaves many individuals looking somewhat bewildered, I tell them it boils down to the housing market.
The goal of increasing the homeownership rate has been on the agenda of both the Republican and Democrat parties for many decades. Both sides cite studies that supported the notion that increasing the homeownership rate will ensure stability in the communities as many homeowners mow their lawns on Saturday morning (not too early), crime would go down, and essentially all of the societal ills ascribed to a transient population would be eliminated. As a result, many communities resisted through zoning or other means building additional rental units and pushed builders to build single family homes or townhomes.
However, we have traditionally been a nation built on mobility-“Go West Young Man” was a motto well into the 20th century. Moreover, this credo of mobility has enabled the workforce to move to where the jobs are and has resulted in the US economy enjoying continued growth and prosperity. The great recession as it is now being titled had its origins in the housing crash and as a result profoundly changed the mobility of the workforce.
In regions of the country that are experiencing a nascent economic recovery, finding skilled workers has been challenging and in many cases these positions remain unfilled as ideal candidates are stuck in other regions of the country with a house they cannot sell. To be clear, it is often not the case that they cannot sell their home; it is more likely that if they are able to sell their homes they would still owe a substantial amount to the bank. It has been stated that at least 20% of the homes are underwater in terms of their mortgage in the US. In this credit conscious society, abandoning your home to the bank, often referred to as a strategic default will not only affect the individuals’ ability to borrow again, but will affect their ability to get a job. The amounts are non-trivial often amounting to tens of thousands of dollars or more.
As a young child when I came across a deep hole, I would toss a rock in it and wait for the familiar splash of water, letting me gauge how deep the hole was. I suspect that when it comes to the housing market, many people are on the edge of that hole waiting for the sound of the splash. However, outside of the fact that the number one asset of most individuals has lost anywhere between 10% and 50% of its pre recession value, the lack of recovery in this market will continue to prevent labor from moving where it is needed and this one of the many reasons why unemployment will continue to remain persistently high in many locations for the foreseeable future.