Monday, May 9, 2011

Unemployment Rate Blues

For the past three years, the U S economy has struggled with the “Great Recession.” Aside from the near collapse of our financial system, the most devastating part of the economy has been the loss of jobs. At one time, the economy was losing over five hundred thousand (500,000) jobs per month. The jobless unemployment rate rose to above ten (10%) per cent at one point.

This Friday the Labor Department will be reporting the number of jobs gained in April 2011. It is expected that the jobs number will increase by over two hundred thousand (200,000) jobs but the unemployment rate may rise to 8.9 per cent! How do we increase jobs but the unemployment rate not only does not fall but actually increases???

This is one of the tricky elements of our economic system and the way that unemployment is reported. The unemployment rate measures the percentage of people who are looking for work but who can’t find jobs. As our economy and its multiple parts change with each month, the number of people looking for work vacillates.

Therefore, as the number of jobs increase, more people who have been discouraged and have stopped looking for employment start to feel better about the job market and re-enter the employment pool as they start looking for work again. This means the economy can create jobs, give people hope, get more people looking for work, and the result is that the unemployment rate goes up!

So beware of the unemployment rate. It has a tricky side. It may not reflect the number of those out of work but rather those who have started looking for work again.

Thursday, May 5, 2011

Banks as Sellers

As part of our new economic situation, many banks now own foreclosed property that is being offered for sale. Because there have also been a lot of bank failures, we also have Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) as our owners/sellers. This situation is causing some consternation among potential buyers of these properties who are unaccustomed to the rigid rules and regulations affecting these sales.

When a buyer submits an offer on a foreclosed property owned by Fannie Mae or Freddie Mac, they in turn receive an Amendment from the seller that basically says “Here are our terms…take it or leave it.” No changes to the contract addendum are accepted. The HUD has to be presented to the seller for approval a full 72 hours prior to closing. If any changes are made after that, they start the 72 hour requirement over again as though it is a new HUD.

As real estate professionals, we understand that this is the way it is with financial sellers. The problem is that the buyers often don’t understand. Realtors need to prepare their buyers to understand that the seller does not negotiate.

If the buyer becomes frustrated and backs out of the purchase, the seller knows that at some point in the future there will be another buyer who will buy on the bank’s terms. They don’t mind waiting.

J. Byron Wyndham