US Economic recovery not possible without improvement to housing market?

While the economy in Canada continues to head toward fairly robust results of growth if a little short of expectations the situation in the United States continues to limp toward recovery in a way that can best be described as very fragile. The US market while stronger than 2007/8 is still not showing any signs of the quicker recovery that companies, consumers and of course the government would have hoped to have seen. Recent reports indicate that the economy won’t display any real vitality until the housing market makes a proper recovery according to market experts. The worrying fact is that the number of homeowners staring at foreclosure continues to increase and some states that previously remained buoyant are now struggling. In particular Massachusetts which previously had seemed resistant to the housing collapse has fell sharply recently.  In July the total of foreclosed homes in the state (1,300) was more than double the same month last year. Month-to-month filing for foreclosures has risen for five consecutive years.

As unemployment rates remain high banks are more aggressively seeking to remove bad loans from their ledger, with the aim being to close loans that aren’t being met and transfer ownership to new mortgages for people with or without the attempt to refinance your reverse mortgage. The historically high foreclosure rates are due in part to banks working extra hard to get those non-performing loans off their books. In other words, they want to close out the bad loans and resell the homes to people who can afford them. Hardest hit are those in industries that are slowest to recover from the recession and therefore often being confronted with extended periods of unemployment. The cycle, while vicious, lends an anchor to a fuller economic recovery state analysts who claim unemployment and under-employment are the bigger factors in foreclosures than the fall in property value and sub-prime mortgages.

A sobering report from RealtyTrac report states that in the first six months of 2010 the foreclosure rate increased in 75% of largest U.S. metropolitan areas, compared with the same period in 2009. Mediation is cited as another alternative to the continuing housing malaise, in some states where legislation has changed the approach of lenders foreclosures have been cut by more than 80% which helps market prices to level off and is naturally better for neigbourhoods where a foreclosure may otherwise occur.

As an observer I wonder if the economy recovering will drag the housing market back to stability rather than the other way around. Pressure remains on banks to improve their loan exposure while the market continues to be chopped downward with each new foreclosure in such a vulnerable sector. What can’t be denied is the single biggest loan and asset percentage of the US economy is tied to housing and mortgages, the recovery must be married to housing and the sooner the better.