Obama, Unemployment, and the Real Estate Market: What to Expect

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Obama, Unemployment, and the Real Estate Market: What to Expect

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As anyone knows, the real estate market has been in a continual slump since 2007, when the historic real estate bubble popped. Since then, prices have plummeted dramatically, from a peak median home price of $262,600 in March, 2007 to $222,600 in May, 2011 – a fall of 15% over the past four years. Unemployment has also remained stubbornly high – around or above 9% for the past 28 months. Plus, foreclosure rates have flooded the market with a historically-high inventory of unsold homes that continues to depress home values and force distressed property owners into economic hardship.

In light of this rocky road, President Obama and his administration have attempted to rectify the jobs market by spurring job creation, help the housing market with loan modification programs and other incentives, and regulate the real estate industry by fighting for a settlement with lenders accused of foreclosure fraud.

Critics and supporters both have their say as to how successful the Obama administration has been for those goals, but in the end, what can be expected?

High Unemployment Likely to Continue

The unemployment rate – currently at 9.2% as of May, 2011 – will likely remain stubbornly high throughout the rest of the year, in part due to the fact that unemployment is a lagging indicator of economic growth. Even though the economy has grown over the past several quarters, unemployment will still remain high for the foreseeable future, even in a best-case scenario. High unemployment continues to influence the real estate market because homeowners cannot pay their current mortgages and cannot take on new mortgages without jobs – which means housing values continue to remain flat as foreclosures and short sales increase.

Government and Lenders Will Reach an Agreement

Call it what you will, but the federal government, a coalition of state governments, and five major lenders including Citigroup, JPMorgan Chase, and Bank of America should reach a settlement soon on new regulations and practices in light of the notorious robo-signing foreclosure scandal that rocked the industry last year. The banks could be on the hook for around $20-30 billion, plus the possibility of additional fees in the future. In return, though, banks will likely feel free to increase foreclosure processing, which has been on ice due to uncertainty over the past six months.

The main impact on this settlement for the market will be greater access to financing and more foreclosures entering the market. Both are bits of good news for buyers and could even be good to hear for homeowners who are looking to lenders for loan modifications.

Federal Assistance for Unemployed Homeowners Continues

The federal government is also continuing assistance to homeowners who have lost their jobs.The Emergency Homeowners Loan Program EHLP - will give an additional $1 billion to homeowners who cannot make their payments due to losing a job. The requirements are a bit strict, and the timeline filing deadline is July 22; funds must be disbursed by the end of September is a bit short, but the added benefit of a zero-interest loan that is forgivable is too good to pass up for many.

The overall impact on the national market will likely be minimal to moderate, but local markets could experience an uptick in prices and sales.

Obama to Reach Agreement on Deficit Spending; Budget Cuts Coming

Lately, President Obama has been in talks with Republican leaders about deficit spending and controlling the budget to reduce the amount of debt we collectively owe as a nation. While the issue is one of the most galvanized issues in politics today both sides have been at each other's throats for the better part of the past year on the subject leadership in Congress and the president are within reach of an agreement that could see steep budget cuts over the next few years.

The impact of this development on the real estate market could be positive or negative, depending on what, exactly, is done. If mortgage relief programs get axed or reduced, though, the impact will be profound on the real estate market. Foreclosure experts are divided so far, and it's unclear to us what the ultimate decision will be.