reaching the u.s. employment increase 'tipping point

7/31/2019 Reaching the U.S. employment increase 'tipping point'

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REACHI NG TH E U .S. EMPLOYMENT

IN CREASE T I PPIN G POIN T

THE POSITIVE EFFECTS ON THE DRAMATIC

IMPROVEMENT IN STATE MORTGAGE MARKETS

DURING THE FIRST QUARTER OF 2012, AND ON

THE PROSPECTS FOR SINGLE-FAMILY

HOUSING CONSTRUCTION, 2012 TO 2015

EXECUTIVE SUMMARY

Doug Smyth and Assoc ia tes

June, 2012


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D o u g S m y t h a n d A s s o c i a t e s i

EXECUTIVE SUMMARY TABLE OF CONTENTS

PART ONE

THE EFFECT OF MAJ OR MANU FACTURING-RELAT ED INDUSTRIES ON

THE SURGE IN TOTAL NONFARM EMPLOYMENT IN T HE UNI TED

STATES, J ANUARY, 2010 TO MAY, 2012

The ef fect o f m ajor manufact ur ing-re la ted indust r ies on the surge in to ta l nonfarm

employment in the Uni ted States, February, 2010 to May, 2012 1

The acceleration of total nonfarm month-to-month employment growth, February to

November, 2010 and 2011 1

February to November, 2011 2

The acc e lerat ing ra te o f year-over-year increases in to t a l nonfarm employment in the

Uni ted States, 2010 to 2012 2The manufacturing-led increase in total payroll employment in the United States,

December, 2009 to December, 2011 2

The rec overy of the 2008-2009 job losses during 2010, 2011 and 2012 3

Future employment in 2010-2015: product iv i t y losses versus onshor ing increases 4

The sustainability of improvements in durable goods manufacturing employment 5

Part One: Appendix A

The impact o f the recovery o f the U.S. auto and l ight t ruc k m anufactur ing indust ry on

durab le goods manufact ur ing employment and on economic grow th, 2010 - 2012 6

The mul t ip l ie r e f fect o f im proved motor veh ic le indust ry employm ent on the durab le

goods manufact ur ing indust ry and on the broader economy 6

The demise and recovery of the housing-related industry sectors 7

PART TWO

THE EFFECT OF RISING EMPLOYMENT LEVELS IN T HE UN ITED STATES

ON TH E RECENT MORTGAGE MARKET CRISIS AND SINGLE-FAMIL Y

HOUSING CONSTRUCTION, 2010 T O 2013

The ef fect o f r is ing employment leve ls in the Uni ted States on the recent

mort gage market cr is is and s ing le-fami ly housing const ruc t ion, 2010 to 2013 8

The impact of the rapid recovery of the national job market on recession job

losses, January, 2010 to May, 2012 8

The effect of individual state employment trends on the mortgage market crisis 9


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D o u g S m y t h a n d A s s o c i a t e s ii

Key mortgage market indicators 10

The impact of declining mortgage originations on mortgage delinquency statistics 10

The ef fect o f employment increases in the major job-creat ing sta tes on the surge

in tot al U.S. nonfarm jobs, Decem ber, 2009 to Decem ber, 2012 1 1

Employment shares of the top 20 states 11

Positive effect on the mortgage market 11

Key mortgage indicators: 90-day plus delinquent loans 11

The ef fect o f r is ing employm ent leve ls in the Uni ted States on t he s ing le-fami ly

home mort gage market c r is is, 2010 to 2013 1 2

The role of employment income factors in repairing the mortgage-financing system 12

The underwater mortgage myth 12

The lending standards factor in declining mortgage delinquencies 13

Winding down the foreclosure inventory 13

The ef fect o f the decl ine in purchase mortgage or ig inat ions on key mortgage mark et

ind icators in t he Uni ted States, 2005 to 2011 1 4

The impact of declining mortgage originations on mortgage delinquency statistics:

absolute number changes versus percentage rates 15

Epi logue: Reaching the em ployment inc rease t ipp ing poin t : the dramat ic

improvement in t he key mortgage mark et ind icat ors dur ing the f i rst quar ter o f 2012 1 5

The recovery in the nationwide mortgage market, first quarter, 2012 16

Shutting down the mortgage foreclosure process: eliminating the 90-day plus

mortgage pool 16

The Stat e-by-Stat e Progress Report 1 7

What ever happened to subpr ime m ortgages? 1 8

The effect of subprime mortgage foreclosures on Hispanic homeowners in the

United States, January 1, 2007 to January 1, 2010 18

The banks subprime mortgage fraud 19

The impact o f t he recovery o f the subpr ime mortgage mark et on the overa l l

mort gage market ind icators, f i rs t quar ter , 2010 to f i rst quar ter , 2012 2 0

The recovery of the subprime mortgage market, first quarter, 2010 to first

quarter, 2012 20

The subprime mortgage driver of the improving overall mortgage market, first quarter,

2010 to first quarter, 2012 21

The posi t ive impact o f the im proving mortgage mark et on U.S. house pr ices and

home sa les 2 1


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D o u g S m y t h a n d A s s o c i a t e s iv

Long-term trends 34

The impac t o f pent-up demographic demand on s ing le-fami ly housing

const ruct ion in the Uni ted Stat es, 2003-2012 3 4

The 2002-2006 single-family housing boom 34

The real demographic demand factor for single-family housing to mid-2005 35

The effect of financial market fraud on the collapse of the single-family housing

market, 2008-2011 35

The st rong Hispanic c ontr ibut ion to t he growt h in to ta l U.S. employment and

inc omes , 2000-2011 3 6

Improving Hispanic employment prospects in early 2012 37

The effect of declining future immigration inflows on total U.S. employment, 2012-2015 37

Finding jobs for unemployed Hispanics already in the country, 2012 - 2015 38

Tota l nonfarm em ployment , 2012-2015 3 9

Summ ar izing the Hispanic demographic potent ia l for purchasing s ing le-fami ly

starter homes, 2012-2015 4 0

The conf idence fact or 4 1

The banks unrealistically high mortgage underwriting standards 41

The rising employment solution to the mortgage banking confidence problem 42

The ef fect o f homebui lder conf idence on s ing le-fami ly housing st ar ts, 2012 4 2

The durable goods manufacturing industry driver of the U.S. economy 43

The impact o f the decl ine in unauthor ized imm igrat ion in f lows on t he pent-up

deman d for single-fami ly housing, 2012 - 2015 4 4

The re turn o f s ing le-fami ly housing const ruc t ion t o rea l demographic dem and

levels, 2012 - 2015 4 6

Epilogue: the e f fec t o f a reviva l o f s ing le-fami ly housing star t s on the sof t w ood

lumber and other w ood-products indust r ies 4 7


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D o u g S m y t h a n d A s s o c i a t e s 1

EXECUTIVE SUMMARY

PART ONE

THE EFFECT OF MAJOR MANUFACTURING-RELATED

INDUSTRIES ON THE SURGE IN TOTAL NONFARM

EMPLOYMENT IN THE UNITED STATES, JANUARY, 2010

TO MAY, 2012

In January, 2010 total nonfarm payroll employment in the United States plunged to 127.3

million jobsthe lowest level in the decade. That drop resulted from the severe recession,

which began in January, 2008 and continued until its official end in June of 2009. However,

the nations jobs total continued to decline until the first month of 2010.

The acce le ra t ion o f t o ta l non fa rm mont h-to -month em ployment g row th ,

February to Novem ber , 2010 and 2011

In February, 2010 the job market began its long road to recovery. February is traditionally

the month when the economy begins to recover from the seasonal decline in the number ofnon-seasonally adjusted jobs between November of the preceding year and January of the

current year.

Therefore, in order to correctly gauge the effect of the economic recovery on total nonfarm

employment it is necessary to begin the m o n t h - t o - m o n t h comparisons in February and

measure the total changes through November of the current year, just before the traditional

Winter downturn begins again.

February to Novem ber , 2011

The industry pattern of increases in total nonfarm jobs between February and November,2011 was similar to what had taken place during the same period the year before. Ho we ve r ,

du r ing 2 011 t he pace o f the overa l l im provem ent g rea t l y acce le ra ted over the sharp

ra te o f i ncrease dur ing 2010 .

Dur ing t he 2011 February- to -Nov ember pe r iod , the na t ion s j obs to t a l soared by a

w h o p p i n g 4 .0 m i l l i o n , 2 5 0 t h o u san d g re a te r t h a n t h e s t ro n g 3 .8 m i l l io n su rg e


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d u r i n g t h e sa me p e r i o d i n 2 0 1 0 . The d iscussion on page th r ee exp la ins w hy t he

2011 r i se i s unders ta ted , j us t as the 2010 increase was.

Between February and November, 2011 t o t a l ma n u fa c tu r i n g maintained its strong pace of

job creation, with a 577 thousand combined jump in permanent and temporary help service

jobs. A l to g eth e r , d u r i n g t h e Fe b ru a ry - t o -No ve mb e r p e r i o d i n 2 0 1 1 t o t a l m a n u f a ct u r i n g -

r e l a ted i ndus t r i es b o o ste d e mp l o ym e n t b y 1 .6 9 m i l li o n j o b sj u s t - 2 5 t h o u sa n d f e w e r

than t he 1 .71 m i l l i on su rge dur ing t he sam e per iod the year be fo re . The g roup

inc ludes re ta i l and wh o lesa le t r ade , and t ranspor t a t ion and w arehous ing .

THE ACCELERATING RATE OF YEAR-OVER-YEAR

INCREASES IN TOTAL NONFARM EMPLOYMENT IN THE

UNITED STATES, 2010 TO 2012

The previous section of this summary examined the rapidly accelerating rate ofm o n t h - t o -

m o n t h increases in total nonfarm employment in the United States between February and

November, 2010, and during the same period of 2011. It was important to compare those two

periods in order to appreciate the fast rate of recovery in nationwide jobs as each month passed.

However, in order to understand the true long-term gains in employment it is necessary to

examine the year -over -year increases between the same months in succeeding years.

The year - to -year drops between 2008 and 2009 were so severe that it would take many

months before the economy could recover those losses. Ho we ve r , b y De ce mb e r , 2 0 1 0 t h e

year -over - year gap had su rged to 1 .0 m i l l i on , t h a n k s t o t h e 3 .8 m i ll i on m o n t h - t o - m o n t h

j u m p in t h e n u m ber o f j ob s cr eat ed bet w een Febr u ar y an d Nov em ber o f t h at y ear .Between 2010 and 2011 the year-over-year increases in total nonfarm employment between2010 and 2011 soared upward at a rapidly accelerating rate.

Dur i ng t he f i r s t 5 m on ths o f 201 2 t he year -over - year i nc reases averaged a wh opp i ng

2 .0 m i l l i on over t he sam e 2011 m onths . Tha t j um p exceeded t he average year - t o -

year i nc reases f o r t he l ast f ou r m on th s o f 2011 by a s t r ong 2 58 t h ousand , o r 15

pe rcen t !

Eve n mo re i m p o r ta n t l y , d u r i n g t h e f i r st f i ve mo n t h s o f 2 0 1 2 t h e tw o -ye ar sa me -

m onth increases over the 2010 leve ls su rged by an average o f 3 .3 mi l l i on jobs.

Tha t rap id l y acce le ra t ing ra te o f r i se la te in 2011 and in ea r l y 2012 show s tha t t he

broader economy i s expand ing a t a hea l thy pace, l ed by durab le goods manu factu r ing

e mp l o ym e n t a n d a s te ad y re su rg en ce o f con su me r sp e n d in g . I n t h e f o u r t h q u a r t e r o f

2011 t he durab le goods componen t o f the persona l consum pt ion expend i t u res secto r

o f the economy surg ed by 15 .3 percen t . Tha t j um p s ign i f i es a rap id r i se in the ra te o f

consumer spend ing .

The su rge in the num ber o f pu rchases o f h igh -cost du rab le goods w as fue led by th e

sharp r i se in househo ld incom es earned by new ly-em p loyed ind iv idua ls .


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The manufac tu r ing-led inc rease in to ta l pay rol l emp loyment in the Un i ted

States , Decem ber , 2009 to Decem ber 2011

Betw e e n Decemb e r , 2 0 0 9 a n d Decem b e r , 2 0 1 1 , t o ta l n o n fa rm p a y ro l l e mp l o yme n t i n

the U.S. soared by a wh opp ing 2 .8 mi l l i on jobs. Tha t tw o-year pe r iod included the

low fo r t he decade o f 127 .3 mi l l i on in January o f 2 010the f i r s t m on th and inDecember , 2011 t he second-h ighest num ber s ince Decem ber , 2008 . Tha t was a

d ra ma t i c r e co ve ry i n j u s t 2 3 m o n th s t i me !

Total manufacturing alone accounted for 807 thousand of the 2.8 million nationwide total rise,

or 29 percent. The lions share (94 percent) of the credit goes to the durab le goods sector,

with a 756 thousand jump over the two-year period.

A l to g eth e r , e mp l o ym e n t i n t h e 3 m a j o r m a n u fa ctu r i n g - re l a te d i n d u s t r i e si n c lu d i n g

re ta i l and w ho lesale t rade , and t r anspor ta t ion and w arehous ingsoared by 1 .5

m i l l i onw el l over ha lf o f the 2 .8 mi l l i on ne t i ncrease in to t a l non fa rm jobs.

I t m u s t b e n o te d t h a t t h e 2 .8 m i l l io n i n c re ase in t o t a l n o n fa rm j o b s i s co n se rva t i veb e ca u se o f t h e u n d e r - re p o r t i n g p ro b l e m w i t h t h e BLS e mp l o ym e n t su rve y i n a

rap id l y - r i s ing job m arke t . The fu l l study exp la ins the reasons fo r tha t phenom enon.

I n Ja n u ary , 2 0 1 2 , t h e BLS be n ch m a rke d i t s e mp l o ym e n t su rve y n u m b e rs t o t h e Ju l y ,

2011 census f i gu res f rom the s ta te unem p loym ent i nsu rance system s. The rev ised

n a t i o n a l n u mb e rs f o r 2 0 1 0 sh o w e d t h a t seve ra l ke y i n d u s t r y sec to rs e n j o ye d

s ign i f i can t upw ard rev is ions, w h ich cam e to a comb ined increase o f 135 th ousand

fo r th e per iod be tw een December , 2009 and Decemb er , 2010 . The same pa t te rn i s

e xp e cte d f o r 2 0 1 1 w h e n i t s n u mb e rs f o r t h e l as t 9 m o n th s a re b en ch ma rke d i n e a r l y

2 0 1 3 . Th e u p w a rd re v i s io n f o r j u s t t h e f i r s t s i x m o n th s o f 2 0 1 1 i s a lr e a d y a t 9 6

th o u sa n d , f o r a w h o p p i n g 1 5 -mo n t h t o ta l r e v i si o n o f 2 3 1 t h o u san d , o r 1 5 t h o u san da m o n th o n a ve rag e .

As a resu l t , t he f u l l tw o-year r i se i n t o t a l non fa rm j obs be tw een December , 2009 and

December , 2011 i s p red i ct ed t o be 2 .9 m i l l i on , 100 t hou sand g rea te r t han t he 2 .8

m i l l ion o r i g i na l l y r epor t ed .

THE RECOVERY OF THE 2008-2009 JOB LOSSES DURING

2010, 2011 AND 2012

The total reported loss in national nonfarm employment during the recession is -8.5 millionjobs. It is the calculated change between the January, 2008 non-seasonally adjusted

number of 135.8 million and the January, 2010 low for the decade of 127.3 million.

Over the two-year period beginning in January, 2010, total employment surged following

the pattern predicted in our detailed standalone studies of the motor vehicle and parts and

total durable goods manufacturing industries which were published in April, 2011. As a

result, between December, 2009 and December, 2011 the nations jobs total surged by


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2.8 million: by 1.0 million in the first year, and by 1.8 million in the second. In turn, the

number of jobs recovered from the -8.5 million recession loss jumped to 6.0 million in

November, 2011or 70 percent of the original total that had been lost.

However, between November, 2011 and May, 2012 total nonfarm jobs surged by an

additional 595 thousand. As a result, the total increase from the January, 2010 decade-low

to this May was a whopping 6.6 million. Because o f tha t 6 .6 m i l l i on su rge , a fu l l 77

percen t o f th e -8 .5 mi l l i on jobs los t du r ing the recession had been recovered

approach i ng f ou r - f i f t hs !

How ever , by ea r ly 201 0 a subs tan t i a l 630 t h ousand Mex i cans w ho had been

emp l oyed m embers o f t he U .S. work fo r ce i n 2005 had re tu rned t o t h e i r home coun t r y .

Since those 630 Mex icans have le f t t he U.S. pe rmanen t l y , the i r fo r m er jobs can no

longer be coun ted as par t o f t he o r ig ina l -8 .5 mi l l i on job losses be tw een January ,

2008 and January , 2010 . The tw o-year l oss f i gu r e then sh r ink s to -7 .9 mi l l i on .

As a resu l t , t he r ea l r ecovery share com es t o a whopp i ng 6 .6 m i l l i on , o r 83 p e rcen t

w e l l ove r f ou r - f i f t hs .

FUTURE EMPLOYMENT IN 2012-2015: PRODUCTIVITY

LOSSES VERSUS ONSHORING INCREASES

I t i s c lea r f rom the p reced ing d iscuss ion tha t , s ince the decade- low in t o ta l

n o n fa rm e mp l o ym e n t w a s re ach ed i n Jan u a ry , 2 0 1 0 , t h e t o ta l n u m b e rs o f j o b s i n

the U.S. has soared a t a rap id l y -acce le ra t ing ra te on bo t h a mont h - t o -m onth and a

year -over - year bas is.

However, it is important to understand that, of the -1.3 million positions yet to be restored

as of May, 2012 in order to recover the full -7.9 million jobs lost during the recession, many

would have been lost anyway to ongoing improvements in productivity, or output per hour

worked.

For t una te ly , over the past tw o years a st r ong coun te rv a i l i ng t rend has been

b u i l d in g u p ste a m. Kn o wn p o p u l a r l y a s o n sh o r in g , i t s im p l y me a n s t h a t

compan ies w ho once sourced f rom o r l oca ted new m anufactu r ing p lan ts overseas

in o rder to tak e advan t age o f m uch cheaper hour l y l abor costs have now been

br ing ing back m any o f those facto r ies to th e Un i ted Sta t es . As a resu l t , w ha t used

to b e a st ro n g t r e n d t o w a rd o f f sh or i n g h a s be g u n t o b e co n ve r te d t o

o n sh o r i n g .

The reason fo r th i s new t r end i s sim p le . U .S. com pan ies have d iscovered tha t ,

a l though h our l y w age ra tes in As ia a re mu ch low er than in t he U.S. , substan t ia l l y

h i g h e r o u tp u t p e r h o u r w o rke d i n No r th Ame r i ca h as d ra ma t i ca ll y r e d u ced t h e g a p s

in un i t l abor coststhe hour l y compensa t ion ra t e d i v ided by the num ber o f un i ts o f

o u tp u t p r o d u ced b y a n h o u r s wo rk . Wh e n t h e m u ch cl o se r p ro x i m i t y t o t h e U .S.

compan ies custom er base and sav ings on de l i ve ry t im e and t r anspor ta t ion costs


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are facto red in , the typ ica l Nor th Am er ican facto r y base has become m uch m ore

co mp e t i t i ve o ve r t h e p a s t f e w ye a rs.

Moreover, recent pattern-setting collective agreements in major U.S. durable goods

manufacturing industries such as motor vehicles and parts, airplanes, rubber tires and steel

have all resulted in enormous savings in unit labor and total production costs. Those labor

contracts not only dramatically reduced hourly compensation costs for new employees, they

also provided for the implementation of new work rules in order to overcome obstacles that

had hindered improvements in efficiency and productivity.

All of those cost-saving moves were instrumental in saving the Detroit Three auto and light

truck manufacturing industries from bankruptcy in 2010. They a lso have m ade th e U.S.

a u to co mp a n y m a n u fa ctu re rs so co mp e t i t i ve t h a t t h e y h a ve ra p i d l y b e en t a k i n g

aw ay mar ke t share f rom o f fshore im por t s and veh ic les manu f actu red on U.S. so i l

by fo re ign com pan ies. A t the sam e t im e , be tw een 2010 and 2011 to t a l U .S.

p roduct ion o f cars and l i gh t t rucks su rged by 86 9 thou sand , o r 11 .2 percen t . And

d u r i n g t h e f i r s t 4 m o n th s ye a r - t o -d a te of 2 0 1 2 o u tp u t su rg e d b y 2 1 8 t h o u san d

o ve r t h e sa me -p e r i o d 2 0 1 1 t o ta l , or 3 3 p e rce n t !

A l l o f those deve lopm ents have a l ready permi t ted U.S. du rab le goods m anu factu re r s

to g re a t l y e xp a n d t h e i r e mp l o yme n t r o l l s. Au to co mp a n i es h a ve n ot o n l y o p e n e d

new p lan ts in the U.S. , bu t t hey have a lso m oved p roduct ion o f som e key

compon en ts back f rom the i r o f f shore locat ions.

The emp l oym ent ga i ns w h i ch w i l l con t i nue t o accrue f r om onshor i ng w i l l go a long

w ay t ow ard o f f se t t i ng t he j ob l osses t o p rodu c t i v i t y i nc reases i n du rab l e goods

m anu fac tu r i ng du r i ng 2012 , and f o r severa l years t o come.

W hen t he l a rge num bers o f t em pora ry he l p se rv i ce emp l oyees a re added i n , t he

i mpr ovement i n t o t a l du rab l e goods manu fac tu r i ng emp l oym ent i s m uch be t t e r t han

t he s l ower t r ack reco rd o f pe rm anen t w orke rs has im p l i ed in t he popu l a r p ress .

The sus ta inab il i t y o f im provements in durab le goods manufac tu r ing

employment

Our de ta i l ed exam ina t ion o f th e fu tu r e p rospects o f severa l du rab le goods

m a n u fa ctu r i n g i n d u s t r i e s sh ow s t h a t i t i s h i g h ly l i ke l y t h a t t h e s t ro n g p a ce o f j o b

g ro w th se t i n 2 0 1 0 a n d 2 0 1 1 w i l l b e su sta i n e d f o r so me t i me t o co me .

To pu t i t s imp ly , th e typ ica l U.S. du rab le goods m anu factu re r i s now in a much m ore

compet i t i ve pos it i on in wor ld m arke ts . As a resu l t , the p rospects fo r con t inueds t ro n g g ro w th i n t h e j o b m a rke t s o ver t h e n e x t f e w ye a rs a re very g o o d .

Time and space do not permit a detailed discussion of the progress being made by the

individual durable goods manufacturing industries in this summary. Readers who are

interested in that information should consult the full study.


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PART ONE: APPENDIX A

THE IMPACT OF THE RECOVERY OF THE U.S. AUTO AND

LIGHT TRUCK MANUFACTURING INDUSTRY ON DURABLE

GOODS MANUFACTURING EMPLOYMENT AND ONECONOMIC GROWTH, 2010 - 2012

Our detailed April, 2011 study (41 pages) with a similar title documented the beginnings of

the dramatic recovery of the U.S. motor vehicle and parts industry, following a brush with

near-bankruptcy in the Summer of 2009. That report correctly predicted the 1.2 million

surge in total U.S. vehicle sales between December, 2010 and December, 2011 to 12.8

milliona 10.3 percent increase. Total U.S. production, which determines changes in

industry employment, jumped by 869 thousand, or an even greater 11.2 percent rise, to 8.6

million cars and light trucks.

As a re su lt , o u r p re d i ct i o n t h a t b y t h e e n d o f 2 0 1 1 , t o ta l e mp l o ym e n t i n t h e m o to r

ve h i cl e a n d p ar t s i n d u s t r y w i l l h ave r i sen b y a t l e as t 2 0 0 t h o u san d f r o m th e

December , 2009 leve l w as accura t e .

THE MULTIPLIER EFFECT OF IMPROVED MOTOR VEHICLE

INDUSTRY EMPLOYMENT ON THE DURABLE GOODS

MANUFACTURING INDUSTRY AND ON THE BROADER

ECONOMY

The m oto r v eh ic le and par ts i ndust r y has a l ready had a la rge mu l t i p l i e r e f fect on

the b r oader U.S. econom y, and par t i cu la r l y on th e local and reg iona l economies o f

t h e m i d we s t a n d t h e so u th . Th e ro u g h l y 2 0 0 t h o u sa n d ad d i t i o n al i n co me s t h a t

w e re c rea te d b y t h e i n d u s t r y b e tw e en De ce mb e r , 2 0 0 9 a n d De cem b e r , 2 0 1 1 h a ve

st rong ly bo ls te red the demand fo r o t he r consumer goods and serv i ces.

Moreover , t he dem and f o r va r i ous manu fac tu red i npu t s i n t o t h e moto r v eh i cl e and

par t s i ndus t r y has been sharp l y boost i ng em p l oyment i n severa l o t he r du rab l e

goods i ndu s t r i es.

Genera l Moto rs has ca lcu lated t ha t , du r in g each o f t he las t 5 m onth s o f 2011 , a tleast 1 0 0 t h o u s an d au to - r e la ted jobs w ere createdfor a to t a l i ncrease o f 5 0 0

t housand f rom August th r ough December , 2011 . Tha t i s the longest s t re tch o f

co n se cu t i ve m o n th - t o -m o n th i n cre a se s si n ce 2 0 0 6 , wh e n t h e e co n om y w a s

b o o mi n g .

Th i s means t ha t t h e mot o r veh i c le and par t s i ndus t r y had an enorm ous mu l t i p l i er

e f f ect on i t s m a j o r supp l y i ng i ndus t r i es in bo th du rab l e and nondurab l e goods


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m anufac tu r i ng . And w hen t hose em p l oyees spen t t he i r paychecks , t ha t boos ted

t he nu m ber o f j ob s i n t he b roader se rv i ce-p rov i d i ng secto r as w e l l .

The demise and recovery of the hous ing-re la ted indust ry sec tors

It is easy to see which are the worst losers among the ten durable goods industries. Th e

reason fo r tha t m ise rab le show ing , o f course , is the long- te rm p lunge in

res iden t ia l const r uc t ion s ince ear l y 200 7 .

I t i s o b v i ou s t h a t t h e w i p e ou t i n con s t ru c t i o n e mp l o yme n t h a d a d i sa st ro u s

nega t i ve m u l t i p l i e r e f fec t on jobs in i t s th ree ma jo r a l l i ed indust r iesw ood p roducts

( l u m b e r ) , f u rn i t u re a n d t h e n o n -m e ta l li c m i n e ra l p ro d u c t s i n d u st r i e s . Al t o g e th e r ,

t hose t h r ee hous i ng - re la ted i ndus t r i es l ost - 4 3 t h ousand j obs be tw een December ,

2009 and Decem ber , 2011 .

That decrease s tood in s ta rk con t r as t to the 800 t housand comb ined su rge in to ta l

e mp l o ym e n t i n t h e se ven non-hous i ng - re l a ted durab le goods secto rs . That increase

accounted for a whopping 29 percent of the 2.8 million jump in reported total nonfarm jobsduring that period. It is five times the durable goods sectors small 6 percent share of the

absolute total number of nonfarm jobs in the U.S.

When th e residen t ia l const r uc t ion indust ry r ev ives, those th ree hous i ng - re l a ted

secto r s w i l l j o in t he o ther 7 du rab le goods indust r ies tha t have been en joy in g so l id

e mp l o ym e n t i n c re ases o ve r t h e p a s t tw o ye a rs .

Th e a ci d t e s t o f w h e th e r o r n o t t h e U .S. d u ra b le g o o d s ma n u fa ctu r i n g i n d u s t r y

has become cost -compet i t i ve w i th i t s fo re ign r i va ls i s the pos it i ve e f fec t on tha t

sec to r s e mp l o ym e n t n u mb e rs . I f t h a t w e re n o t t r u e t h e ra p id e xp an s i on o f

e mp l o ym e n t o p p o r tu n i t i e s a n d t h e o n sh o r i n g p h e n o me n o n w o u l d n o t b e t a k i n g

p lace.


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PART TWO

THE EFFECT OF RISING EMPLOYMENT LEVELS IN THE

UNITED STATES ON THE RECENT MORTGAGE MARKETCRISIS AND SINGLE-FAMILY HOUSING CONSTRUCTION,

2010 TO 2013

Between early 2008 and late 2009 the United States suffered a steep downturn in new single-

family home construction and existing-home sales. That development was caused by a severe

crisis in the market that supplies mortgage financing for home purchases. Millions of

homeowners began to experience a serious loss of equity in their properties, as -8.5 million

job losses from January, 2008 through January, 2010 led to major reductions in household

incomes.

As a result, plunging home sales caused house prices to drop to the point where it became

impossible to sell without suffering an enormous loss of equity. And given that millions of

home mortgages that had been originated during the boom period from 2003 through 2007

were seriously flawed by low and fraudulent underwriting standards, many households were

forced into mortgage foreclosures by their banks.

As a result, the absolute numbers of foreclosures and foreclosure rates in several large

states soared dramatically.

The impac t o f t he rap id recovery o f t he na t iona l j ob marke t on recess ion job

losses, January , 2010 to May, 2012

After total nonfarm employment in the U.S. had plunged by -8.5 million jobs between

January, 2008 and January, 2010,the total number of jobs surged by a whopping 2.8 million

positions between December, 2009 and December, 2011.

However, between November, 2011 and May, 2012 total nonfarm jobs jumped by an

additional 595 thousand. As a result, the total increase from the January, 2010 decade-low to

this May was a whopping 6.6 million.

Because o f tha t sharp 6 .6 . m i l l i on increase in emp loy m ent , as we l l as the

p e rma n e n t r e tu r n o f 6 3 0 t h o u san d Me x i ca n j o b -h o l d ers t o t h e i r h o m e co u n t r y , t h e

r ea l r ecovery share of t he ne t - 7 .9 m i l l i on hobs t ha t had been l ost du r i ng t he recessi on now comes t o a w hopp i ng 83 p e rcen tw el l over f ou r - f i f t h s .

Gi ve n t h a t e n co u ra g i n g t r e n d i t i s n o w t i m e t o t a ke s to ck t o d e te rm i n e wh a t t h e

p o s it i ve i m p a ct h a s b ee n o n t h e m o r tg a g e m a rke t f o r r e s id e n t i a l h o u si n g .


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The e f fec t o f i nd ividua l s ta te employment t rends on the mor tgage marke t

c r i s i s

There is an old saying that al l rea l esta t e is loca l. Given the truth of that axiom, it is

extremely important to understand that al l rea l esta t e sta t i s t i cs are a lso loca l . This is

one U.S. statistical series for which national average data are much less meaningful thanindividual state numbers. The reason is that the factors that control the local mortgage

market vary widely from state to state.

The first of those is t h e l e g al f r a me w o rk that each state provides to control the

foreclosure process. Twenty-one states use a jud ic ia l sys tem for processing foreclosures,

which is much slower than t h e n o n - j u d i c ia l sys te ms employed by the other 29 states.

Because of the technical complexity of court proceedings, substantial delays are common.

Bu t d u r i n g l a te 2 0 1 1 t h e 2 9 s ta tes w i t h non- j u d i c ia l f o rec l osu re sys tems w e r e

successfu l l y c lea r ing the i r f o rec losure inven t o ry back logs so rap id l y tha t the

group s average percen tage ra te o f to ta l fo rec losures to t o ta l m or tg age loans

o u ts ta n d i n g f e ll t o j u s t 2 .8 p e rcen t i n t h e f o u r t h q u a r te r o f 2 0 1 1 o n l y t h re e - f i f t h so f the 4 .38 percen t na t iona l average .

How ever , the percen tage o f l oans in fo rec losure in t he j ud i c i al sys tem s ta tes h i t a n

a l l- t i m e h i g h o f 6 .8 p e rcen ta w h o p p i n g tw o a n d a h a lf t i me s h i g h e r t h a n t h e ra te

fo r non- jud ic ia l s ta tes .

Mo st i m p o r ta n t l y , t h e e mp l o ym e n t r e cove ry t r e n d s t h a t h a ve re su l t e d f r o m th e

rap id l y - r i s ing durab le goods p roduct ion fac to r s have been cruc ia l to th e recen t

su b sta n t i a l i mp ro ve m e n ts i n t h e m o r tg a g e ma rk e t s i n e ach ma j o r s t a te . Th e

ev idence c lea r l y show s tha t , be tw een January , 2008 and ear l y 20 10 , the se r ious

income losses wh ich resu l ted f rom severed emp loym ent w ere the d i rec t cause o f

r i s ing m or t gage de linquenc ies, bank f o rec losure ac t ions and ev ic t i ons o f ow nersf rom the i r h om es, and a v i c ious cyc le o f p lung ing house p r i ces f rom c loseby

ne ighborhoods t o c i t i es and reg ions.

Of t he t h r ee f ace t s o f U .S. demograph i cs t ha t c rea te hea l t hy m or tgage m arke t s and

deter m ine sing le- fam i l y hous ing s tar tsincreases in popula t ion , hou sehold

f o rm at i ons and emp l oyment the num ber o f j obs t ha t peop l e ho ld i s by f a r t he m os t

i mpor tan t . As t he emp l oym ent t i de r i ses, a l l t he o the r boa t s r i se w i t h i t . Mor tgage

forec losures d isappear ,househo l d f o rm at i ons i nc rease , and consumers beg i n t o spend f ree ly . Th is i s exact l y w hat i s happen ing in the U.S. econom y now .For tu na te l y , t h i s sum m ary w i l l show t ha t t he l i on s share o f t he l a rge s ta tes t ha t had a l so exper i enced t h e g rea tes t su rges i n t he abso l u te num bers o f f o rec l osu res

b e t w e e n e a r l y 2 0 0 8 t h r o u g h l at e 2 0 1 1 n o w l ea d t h e n a t i o n i n t e r m s o f t h e a b so l u t e

num bers o f j obs be i ng crea ted and t he b i ggest i m provem ents i n key mor t gage

m arke t i nd i cato r s .


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Key mor tgage marke t ind ica to rs

In order to analyze the health of the mortgage market in each state, it is first necessary to

provide a brief description of the stages that a mortgage must go through in order to

proceed from being in a current payment status to being in the foreclosure process.

When a homeowner fails to make his monthly mortgage payments on time, there are t h r e e

de l inquency ca tegor ies. A thirty-day delinquency is for a mortgage for which a payment

was scheduled for March 1st, for instance, but has not been paid by March 31st. A sixty-day

delinquency applies to a mortgage for which the regular March 1st payment still has not

been paid by April 30th.

Wh e n m e asu r i n g t h e i m p a ct o f t h e i n c re a se s i n t h e n a t i o n a l e mp l o yme n t t o ta l s o n

th e h o u s i n g m a rke t , i t i s t h e a b so l u te n u m b e r o f f o re c l osu re s t h a t co u n ts , n o t t h e

percen tage fo rec losure r a te .

The im pact o f decl in ing m or t gage o r ig ina t ions on mor t gage del inquency s ta t i s t i cs

The discussion in this first section of this summary will show that the state of the mortgage

market had already improved dramatically between the beginning of 2010 and the end of

2011 prior to the spectacular boost during the first quarter of 2012. The improvements in

t h e a b so lu te n u m b e rs of the key delinquency and foreclosure indicators have been quite

substantial. However, the gains in the percentage rates for all of those barometers at the

2011 yearend and during the first quarter of 2012 have been grossly understated.

The reason is that each quarterly rate is calculated by dividing the absolute number of

problem loans in that category by the total number of existing first-lien mortgages in the

national or state inventory. Natu ra l l y , as the denom ina to r con t inu es to sh r ink

substan t ia l l y as pur chase m or t gage o r ig ina t ions dec l ine , the ca lcu la ted percen tagera te w i l l i ncrease , even i f the abso lu te num ber o f p rob lem loans in th e ca tegory

re ma i n s t h e sa me !

The i mpr ovement s i n t he va r i ous de li nquency ra tes f o r each ca tegory show n i n t h e

append i x t ab l es f or t h e i nd i v i dua l st a tes resu l t f r om t he i n t e rp l ay be tw een l arge

dec reases i n t he denom i na to r due t o f a l l ing m or tgage o r i g i na t i ons and t he r ap i d l y

dec li n i ng abso l u te num ber o f de li nquen t l oans i n t he num era to r . To pu t i t s i mp l y

t he p rob l em s i nce 2007 i s t ha t t he denomi na t o r has been sh r i nk i ng m uch f aste r

t h a n t h e n u m e r a t o r !


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THE EFFECT OF EMPLOYMENT INCREASES IN THE MAJOR

JOB-CREATING STATES ON THE SURGE IN TOTAL U.S.

NONFARM JOBS, DECEMBER, 2009 TO DECEMBER, 2011

Employment shares of t he top 20 s ta t es

Between December, 2009 and December, 2011, total nonfarm employment in the U.S.

surged by 2.8 million jobs. The top-18 job-creating states accounted for 1.9 million of that

jumpwell over two-thirds. I t i s r e ma rk a b l e t h a t l e ss t h a n o n e - f i f t h o f t h e 5 0 s ta te s

accoun t ed fo r over tw o- th i rds o f the 2 .8 mi l l i on to ta l j obs crea ted in the U.S.

be tw een Decem ber , 2009 and December , 2011 .

Pos i t i ve e f fec t on the mor t gage marke t

As a resu l t , t he subs tan t i a l i mprovem ents i n t he m or tgage m arke t i nd i ca to r s i n

t hose s ta tes w en t a l ong w ay t ow ard b r i ng i ng abou t pos i t i ve ga i ns in t he t o ta l U .S.

b a r o m e t e r n u m b e r s.

Gi ven t he overw he l m i ng shares o f t he t o ta l emp l oym ent and popu l a t i on bases

accoun t ed f o r by t h e t op 20 j ob -c rea t i ng s ta tes, any i m provem ents i n t he i r key

m or tgage m arke t i nd i ca to r s w i l l have a subs tan t i a l i mpac t on t he na t i ona l

averages for those same ind icators .

Key mor t gage ind icat ors : 90-day p lus del inquent loans

By fa r t h e m o s t i mp o r t a n t i n d i cato r o f h o u s in g m a rke t f i n a n c ia l h e al t h i s

m o r tg a g e s t h a t a re 90 days o r more de l i nquen t . The reason i s tha t t hey a re in thelas t s tage o f de l inquency be fo re a fo rec losure s tar t i s i n i t i a ted to p lace those

m or t gages in to th e fo rm a l fo reclosure p rocess. As a resu l t , th i s category p r ov ides

t h e p o o l f r o m w h i ch p ro b l e m l o a n s w i l l m o ve in to t h e f o re c lo su re in ve n to ry .

Between the first quarter of 2010 and the fourth quarter of 2011 the number of 90-day plus

delinquent loans in the U.S. plunged by -933 thousandalmost a million in just under two

years! While some of that drop went into the foreclosure process, much of it is explained by

mortgage modifications and pre-foreclosure sales. A pr e - fo rec losure sa le is a sale that

occurs while the property is actively in default or is scheduled for a foreclosure auction.

Th e t o p 2 0 j o b -c re at i n g s ta te s con t r i b u t e d a -7 4 7 t h o u san d re d u c t i o n i n t h e 9 0 -

day p lus ca tegory , a fu l l fou r - f i f th s o f the to t a l U.S. d rop . Given th e la rge -933

thou sand decrease in the 90- day p lus category s ince the f i r s t qu ar te r o f 20 10 , the

num ber o f p rospect i ve en t ran t s in to t he fo rec losure inven to ry has been

dram at i ca l ly reduced .

Si nce t h i s ca tegory p rov i des t he poo l f r om w h i ch de li nquen t p rob l em l oans m ove

i n t o t he f o rec losu re i nven to r y , such a l arge reduc t i on m eans t ha t o the r avenues are

successfu l l y be ing pursued. As a resu l t , res ident ia l prop er t i es w i th prob lem loan s


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are be ing rem oved f r om t he mark e t , where t h ey have had t he ef f ec t o f d ragg i ng

dow n p r i ces and mak i ng i t d i f f i cu lt f o r ex i s t i ng hom eow ners t o r ecover t he i r equ i t y

a n d m o v e u p t h e t r a d eu p c h ai n . I t a l so m e a n s t h a t f e w e r m o r t g a g es r em a i n a t

r i sk f o r be i ng u nderw a te r because hom eow ners have been ab l e t o do a p re -

f o rec losu re o r shor t sa l e . The t e rm underw a te r m eans t ha t t he va l ue o f t he house

has f a ll en be low t he am oun t o f m or tgage p r i nc i pa l bal ance t ha t r em a i ns t o be pai d .

THE EFFECT OF RISING EMPLOYMENT LEVELS IN THE

UNITED STATES ON THE SINGLE-FAMILY HOME MORTGAGE

MARKET CRISIS, 2010 TO 2013

Af te r l a y i n g t h e g ro u n d w o rk i n t h e p re ce d i n g d i scu ss i on , i t i s n o w t i m e t o e xa mi n e

th e i m p a ct o f t h e sh a rp i n c re ase i n e mp l o yme n t l e vel s o ve r t h e p a s t tw o ye a rs o n

t he m os t i mpor t an t key m or tgage de l i nquency ind i ca to r , t he 90 -day p l us category .

As total payroll employment in the U.S. surged by an enormous 2.8 million jobs betweenDecember, 2009 and December, 2011, the top 20 j ob -crea t ing s ta tes accoun ted fo r an

o ve rw h e l m i n g f o u r - f i f t h s o f t h e -9 3 3 t h o u san d t o t a l p l u n g e in 9 0 -d a y p l u s l o an s

na t ionw ide . A l l - i n -a l l , the r e was a s t rong genera l cor re la t ion be tw een the d ramat i c

increases in to ta l emp loym ent i n the top 20 j ob -crea t ing s ta tes and the s ize o f the

decreases in 90 - day p lus loans.

The ro le o f emp loyment inc ome fac to rs in repa i r ing the m or tgage-f inanc ing

sys tem

Whi le m any o ther f ac to rs a l so p layed a s ign i f i can t r o le in b r ing ing abou t

i mp ro ve m e n ts i n e ach s ta te s ke y m o r tg a g e ma rke t i n d i ca to rs , t h e i m p r o v e m e n t i n t h e e m p l o y m e n t s i t u a t i on w a s b y f a r t h e si n g l e m o st i m p o r t a n t f a c t o r . W i t h o u t t h e

ex t rem e l y hea l t hy i nc reases i n j obs , t he i nc reased i ncomes requ i red t o r epa i r t he

severe damage t o t he m or tgage- f i nanc i ng sys tem w ou l d no t have been ava i lab l e .

The underwat er mor tgage my th

Over the past few years there has been rapidly-growing attention to the concept of an

alleged underwater mortgage problem. That term describes a situation that arose from

the substantial drops in existing-home prices since 2007. As a result, many homeowners

found that the current value of their property was lower than the amount of the principal

balance remaining to be paid on their mortgage. That situation left the homeowner with too

little equity to qualify for a refinancing loan from his bank, and the inability to sell his

property without losing a substantial portion of that equity.

Ho we ve r , t h e u n d e r ly i n g f l a w i n t h e u n d erw a te r mo r t g a g e t h e o ry i s t h a t i t i s a

s ta t i c concep t tha t re l i es on a s t i l l snapsho t i n t ime . I t j us t assumes t h a t a l l o t h e r

f a cto r s w i l l r e ma i n co n sta n t !


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The m os t s i gn i f ican t assum pt i on i s t ha t t he emp l oym ent l eve l w i l l never i nc rease .

The 2 .8 m i l l i on su rge i n t o t a l non fa rm emp l oym ent ove r t he pas t tw o years and

t he 2 .0 m i l l ion year -over - year ave rage i ncreases du r i ng t he f i r s t f i ve m on ths o f

2012 shou l d soon d i spe l t ha t n o t i on !

As th i s s tudy has s ta ted severa l t im es, as em p loym ent i ncreases a l l boa ts r i se w i th

i t . The m ost s ign i f i can t o f those are the decl in ing mor tgage fo rec losures, w h ich

fo r a w h i l e d u r i n g t h e re ce ss i on r a n o u t o f co n t ro l . Like for ec losures , t he so-ca l led

underw a te r m or tgages w i l l a l so soon d i sappear .

The lend ing s tandards fac to r in dec l in ing mor t gage de l inquenc ies

Fortunately, thanks to a natural trend factor, the numbers of mortgage delinquencies in most

states had already begun to decline gradually by early 2010. Since la te 2008 lenders have

sh a rp ly t i g h te n e d t h e i r m o r tg a g e u n d e rwr i t i n g s ta n d ard s . As a re su l t , t h e q u a l i t y o f

loans now be ing pur chased o r guaran t eed by Fann ie Mae and Fredd ie Macthe

federa l governm ent s tw o secondary m or tg age mark e t g ian t agenc iesis as h igh as

the loans they acqu i red dur in g the p re -hous ing boom years o f the ear l y 200 0s.

Wh a t i t b o i l s d o w n to i s t h a t t h e r i sky l o an s f r o m th e b u b b l e ye ars h a ve b e en

re p l aced o n t h e b o o ks b y m u ch - l ess- r i sky u n d e rw r i t t e n l o an s .

How ever , t he r i sk f ac to r f o r t he o l de r ex i s t i ng l oans has been g rea t l y r educed by

t he enorm ous emp l oym ent ga i ns in t he U .S. economy over t h e past tw o years . The

s af e st w a y o f a ss u r in g t h a t h o m e o w n e r s w i l l co n t i n u e t o m a k e t h e i r m o n t h l y

paym ents i s t o p rov i de f u l l emp l oym ent i ncomes on a regu l a r bas i s.

Wind ing dow n t he fo rec losure inven to ry

A rea l es ta te -ow ned res iden t ia l p roper t y sa le (REO) is one that occurs while the home

is actively owned by a bank. A fo r ec losure - re la ted sa le is one that occurs while the

property is actively in one of the three foreclosure stages.

A pre - fo r ec losure sa le is one that takes place at one of the first two stagesnotification

or foreclosure auction. A shor t sa le is a special type of pre-foreclosure sale. It means that

the bank holding the loan has given permission for the owner to sell his home at a price that

will not cover the unpaid mortgage principal balance.

Over the past year a pos i t i ve sh i f t has been tak ing p lace aw ay f rom bank-ow ned

sa les to p re - fo rec losure o r shor t sa les . Th is i s a p re fe r red t rend fo r bo t h the

h o me o w n e r o r m o r tg a g e b o r ro w e r , an d t h e b a n k f o r se vera l r e a so n s .

Given the heavy cost bu rden associa ted w i th fo r ec losures, m ost banks have come to

recogn ize tha t shor t sa les are a bet t e r op t ion fo r m any o f the i r non- per fo rm ing loans.

Between the third quarter, 2008 peak and the third quarter, 2011 low for the past four

years the inventory of bank-owned foreclosure mortgages dropped by a healthy -190

thousand to 460 thousand, or -29 percent. That decrease rep resen ts a substan t ia l


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In time the high one-third investor share of existing-home purchases in January, 2012 will

drop back to normal, as pent-up demand for housing picks up and the current foreclosure

inventory is cleared off. As a result, the numbers of purchase mortgage originations will

return to the early 2000s levels, when they accounted for a full four-fifths of the total number

of originations, which includes refinancings.

The impac t o f dec l in ing mor tgage o r ig ina t ions on mor tgage de l inquency

s ta t i s t i c s : abso lu te number changes versus percen tage ra tes

Betw e e n t h e e n d of 2 0 0 9 a n d t h e e n d o f 2 0 1 1 , t h e n u m b e r o f p u rch a se mo r t g a g e

o r i g i n at i o n s p l u n g ed b y -9 2 7 t h o u san d o ve r a tw o -ye ar p e r i o d . Th at w a s f ar

g rea te r th an the t i ny decreases in new and ex is t i ng hom e sa les. The reason fo r

th i s deve lopment has been the ex t r eme ly la rge share accoun t ed fo r by investo r

a l l - cash purchases o f ex is t i ng homes. How ever , th i s i s a tem pora ry h i s to r i ca l

q u i r k , w h i ch w i l l so o n d i sa p p ea r a s t h e ma rk e t p i cks u p .

To pu t i t b l un t l y , t he va r i ous de l i nquency ra t es have no t f a l l en as f as t as t he

abso lu te n um bers because o f a h i s t o r i ca l acc iden t t ha t has t em pora r i l y caused t h e

t o t a l m o r t g a g e i n v e n t o r y t o s h r i n k a t a m u c h m o r e r a p id p a ce t h a n w o u l d b e

expec ted based on t he num ber o f ex i s t i ng -home sa l es. The acc i den t w as t he

rush o f l a rge num bers o f p r i va te i nvesto r s i n t o t he m arke t w i t h a l l - cash pu rchases

o f bank - f o rec l osed p roper t i es. As a resu l t , t he im provem ent i n t he mor tgage

m arke t s i nce t he beg i nn i ng o f 201 0 has been g ross ly und ers ta ted by f ocus ing on

pe rcen tage ra tes ra the r t han t he m uch l a rge r i nc reases i n t he abso l u te num bers .

PART T WO: EPILOGUE

REACHING THE EMPLOYMENT INCREASE TIPPING POINT:

THE DRAMATIC IMPROVEMENT IN THE KEY MORTGAGE

MARKET INDICATORS DURING THE FIRST QUARTER OF 2012

After total nonfarm employment in the U.S. had plunged by -8.5 million jobs between

January, 2008 and January, 2010,the total number of jobs surged by a whopping 2.8 million

positions between December, 2009 and December, 2011.

However, between November, 2011 and May, 2012 total nonfarm jobs soared by an

additional 595 thousand. As a resu l t , the t o ta l i ncrease f rom the January , 2010

d e ca d e- l o w to t h i s May w a s a wh o p p i n g 6 .6 m i l l io n .

Because o f th a t sharp 6 .6 m i l l i on increase in em p loym ent , as w e l l as the perm anen t

re tu rn o f 6 3 0 t h o u sa n d Mex i can f o rm e r j o b h o l d ers t o t h e i r h o m e co u n t r y , t h e r e a l

r ecovery share o f t he ne t - 7 .9 m i l l ion j obs t ha t had been l os t du r i ng t he r ecessi on

comes t o a w hopp i ng 83 pe rcen tw el l ove r f ou r - f i f t h s .


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For t una te ly , the enorm ous increase in t he num bers o f f u l l- yea r i ncom es associa ted

w i t h t h e d ra m a t i c 6 .6 m i l l i on i mp ro ve m e n t i n t h e e mp l o ym e n t n u m b e rs h as b ee n

i n s t ru m e n ta l in r e s to r i n g t h e h o me m o r tg a g e ma rke t s t o h e a lt h i n m o s t ke y s ta te s.

The recovery in the na t ionw ide mor tgage m arke t , f i r st quar te r , 2012

Between the first quarter of 2010when the employment and incomes numbers began to

surgeand the first quarter of 2012, the absolute numbers for each key delinquency category

of the 48.7 million total first-lien mortgages in the United States improved dramatically. Th e

2 0 1 2 n u m b e rs d ir e c t l y r e f l ec t t h e sh a rp 2 .8 m i l l io n j u m p i n t o ta l n o n fa rm j o b s o ve r

th e p re v i o u s tw o ye a rs , a n d t h e 6 0 0 t h o u san d r i se t o Ma y o f 2 0 1 2 .

The most startling development is the sudden ending of large numbers of new mortgages

coming into the foreclosure processing system at the bottom end. A l to g eth e r , d u r i n g t h e

fu l l tw o -ye ar p e r i o d b e tw e en t h e f i r s t q u a r te r s o f 2 0 1 0 a n d 2 0 1 2 t h e 3 0 -d a y a n d

60-day de l inquency ca tegor ies fe l l by a comb ined -434 t housand loans. The

fo u r t h -q u a r t e r , 2 0 1 1 t o f i r s t - q u a r te r , 2 0 1 2 p l u n g e o f - 4 4 6 t h o u sa n d a cco u n te d f o r

1 0 3 p e rcen t o f t h a t tw o -ye ar d ro p !

Obv ious l y , t he bes t w ay t o cu re t h e na t i on s home fo rec l osu re p rob l em i s t o s t op

new p rob l em l oans f r om en te r i ng t he sys tem. The d ram at i c i mpr ovement s show n

a t t he bo t t om end o f t he p rocess are conv i nci ng ev i dence t ha t t he en t r y ga te t o

t he sys tem i s now be i ng c l osed o f f .

Tha t w e l com e t r end c lea r l y i nd i ca tes t ha t h ouseho l ds are genera l l y en j oy i ng a

subs tan t i a l i ncrease in f i nanc i a l hea lt h and , i n t u rn , t h e i r c red i t r a t i ngs needed t o

ge t a m or tgage app l ica t i on approved by t he i r banks . I t a l so show s t ha t bo th

p rospect i ve hom ebuyers and t he banks a re ga in i ng m uch m ore con f i dence in t h e

soundness o f t he economi c recovery and t he app l i can t s ab i l i t y t o a f f o rd a hom epurchase.

Shut t ing dow n the mor t gage forec losure process: e l imina t ing the 90-day p lus

mor tgage poo l

For those homeowners whose mortgages have already passed by the end of the 60-day

delinquency period, there is strong encouragement for owners whose mortgages have reached

the 90-day plus delinquency category. Between the first quarter of 2010 and the same period

in 2012 the number of loans in that category plunged by a whopping -1.1 million.

The d iscussion o f t he ex t rem e s ign i f i cance o f the 90- day p lus de l inquency

cate g o ry e a r l i er i n t h i s r e p o r t e xp l ai n s t h a t t h i s g ro u p o f l o a n s co n s t i t u t e s t h e

poo l f rom w h ich de l inquen t l oans f i na l l y en te r the fo rec losure p rocess.

Obv ious ly , the best w ay to s top a l ready-de l inquen t l oans f rom r each ing th a t po in t

i s to reduce the num ber tha t a re cu r r en t l y ava i lab le in tha t poo l .

Seventy percent of the plunge in the 90-day plus delinquency category can be explained by

the sharp rise in the numbers ofpre - fo rec losure sa les discussed in the previous section of

this summary.


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THE STATE-BY-STATE PROGRESS REPORT

The first section of this study provides a detailed state-by-state analysis of the key

mortgage market indicators for the 20 leading job-creating states up to the end of 2011.

This section will provide a brief update for the first quarter of 2012.

The analysis of the absolute number changes between the fourth quarter of 2011 and the

first quarter of 2012 shows that almost all states have joined in the nationwide trend toward

dramatic improvements in all of the key mortgage market indicators.

For t y-s i x ou t o f the 50 s ta tes92 percen tsaw a decrease in th e i r average 90-day

p lus de l inquency ra tes . Just four had increases.

Forty-one states had decreases in fo rec losure s ta r t sover four-fifthswhile just 9 states

(18 percent) experienced increases.

I t i s c l ea r t h a t f o r t h e k e y m o r tg a g e ma rke t i n d i ca to rs , wh i ch a re t h e s i g n al s a s t ohow m any loans w i l l ac tua l l y m ake i t up the p ipe l ine to th e fo rec losure p rocess,

t h e n e w s i s ve ry g o o d . W i th 8 2 t o 9 2 p e rce n t m a j o r i t i e s o f s t a te s o n t h e p o s it i ve

s ide , th e so -ca l led l i on s share i s head ing in the r igh t d i rec t ion .

I t i s a l so c lea r tha t th e few p rob lems tha t a r e lef t a re becoming increas ing ly

concen t r a ted in j us t a few s ta tes . The 5 s ta tes w i th t he h ighest shares o f to ta l U .S.

loans in fo rec losure s t i l l accoun t fo r 52 percen t o f a l l l oans in tha t ca tegory in th e

n a t i o n .

How ever , it m ust be no ted tha t 4 ou t o f the top - f i ve a re jud ic ial p rocess sta t es .

The ta rd iness o f th e cour t sys tem , espec ial l y i n Flo r ida , wh ich su f fe red f rom am assive num ber o f bank rob o-s ign ing fo rec losure - f raud cases, accoun t s fo r m ost

o f t h e i r p ro b l em .

Overa l l , p rogress has been good . Tw enty- tw o s ta tes had decreases in the i r

pe rcen tages o f l oans in fo r ec losure . By and l a rge , t he vas t m a j o r i t y o f s t a tes have

been w ork i ng qu i ck l y t h rough t he i r back l ogs o f bad l oans . The dec reases i n t he

abso lu te num bers p rove t ha t case .There was an enormous drop in the number of first-lien mortgage loans in the 9 0 -d a y p l u s

de l inquen t ca tegory between the first quarters of 2010 and 2012. That i s the s ing le -

m o s t - i mp o r ta n t i n d i ca to r o f m o r tg a g e h e al t h b e ca u se i t ca n b e a ro u g h p re d i cto r

o f the s i ze o f the poo l w a i t i ng to en t e r i n to t he fo rec losure p rocess.

Readers who wish to see the individual state data should send for the full standalone study,

the second in this series.

Al l o f these t r ends ind icate tha t the w hopp ing 6 .6 m i l l i on ga in in to t a l U.S.

e mp l o ym e n t b e tw e en Ja n u ary , 2 0 1 0 a n d Ma y , 2 0 1 2 h a s h a d a n e n o rmo u s p o s i t i ve

i mp a c t o n t h e ke y m o r tg a g e ma rk e t i n d i cato rs i n t h e l e ad i n g j o b -c re at i n g s ta te s .


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The increased incomes associa ted w i th t hose add i t i ona l j obs have had a ma j o r

im pact on th e hea l th o f th e househo ld f i nances, and on consum er con f idence in

m a k i n g a b i g - t i cke t p u rch a se of a h o m e .

WHAT EVER HAPPENED TO SUBPRIME MORTGAGES?

Thanks to the enormous financial collapse in the United States during the late 2000s,

su b p r i me m o r tg a g e s became one of the most frequently used terms. Su b p r i memo r tg a g e s are those that charged substantially higher interest rates to cover assumed risk

factors, such as the borrowers low income-to-debt ratio. The abuses associated with the

over-issuance of that type of home loan between early 2005 and late 2007 not only shut

down the nations existing and new-home markets between early 2007 and late 2009, but

they also came close to destroying the broader financial system.

Un fo r t u n a te l y , t h e f r a u d u l e n t o ve r -o r i g i n at i o n o f su b p r i me m o r tg a g e s t o H i sp an i c

h o u seh o l d s re mo ve d w h a t h a d b e e n t h e ke y s t i mu l u s t o t h e e ar l y 2 0 0 2 -m i d -2 0 0 6hous ing boom because i t w as the i r pu r chases o f s ing le - fami l y s ta r t e r hom es tha t

p e rm i t t e d cu r re n t e x i s t i n g h o me o w n e rs t o mo ve u p t h e t r a d e u p ch a i n .

Th i s l as t sect i on o f t he repor t ends on a ve ry pos i t i ve news no t e t ha t , by t he f i r s t

quar t e r o f 201 2 , t he subpr i m e mor t gage si t ua t i on has i mproved subs tan t i a l l y .

The e f fec t o f subprime m or tgage fo rec losures on H ispan ic homeow ners in

the Uni t ed States , January 1, 2007 to J anuary 1, 2010

Mortgage foreclosures that were completed between January 1, 2007 and January 1, 2010

had a serious negative effect on Hispanic homeowners. Those mortgages had been

originated between January 1, 2005 and January 1, 2008.

During the first three and one-half years of the housing boom period beginning in early

2002 su b p r i me mo r t g a g es had been originated with cautious safeguards. However, as

the home construction and sales booms began to overheat during the second half of 2005,

the subprime mortgages originated through late 2007 were characterized by rapidly

deteriorating underwriting standards and fraudulent practises.

As a resu l t , t h e 2 0 0 5 t o l a t e 2 0 0 7 su b p r i me l o a n s w e re o f e x t re m e l y p o o r q u a l it y

compared to th ose tha t had been i ssued p r io r to mid - 2005 . The passing o f f o f

those f raudu len t l oans to unsuspect ing investo rs in the secondary m or tg age

m arke t b r ough t abou t the severe f i nanc ia l co l l apse w h ich cam e close to pu t t i ngthe en t i re U.S. economy in to an ou t -o f -con t r o l ta i l sp in .

Unfortunately, Hispanic and African-American black families were by far the hardest-hit by

the defective 2005-2007 subprime loans. Their shares of the comp le ted fo r ec losures

carried out between January 1, 2007 and January 1, 2010 were grossly disproportionate to

those demographic groups shares of the originations of those same mortgages. Comple ted


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fo rec losures are those that have resulted in the sale of a foreclosed residential property,

either through a bank-owned sale or a private pre-foreclosure sale.

The 16.2 percent Hispanic share of total completed foreclosures in the U.S. exceeded the

groups 11.2 percent share of total mortgage originations by 5.0 percent (basis points).

A l th o u g h t h e t h re e ma j o r Ame r i can m i n o r i t y g ro u p s o n l y a cco u n te d f o r a 2 3

percen t comb ined share of to t a l U.S. o r ig ina t ions be tw een ear l y 20 05 and la te

2007 , the i r share o f comp le ted fo rec losures dur ing t he ear l y 2007 to la te 2009

per iod w as close to one- th i r d8.2 percen t g rea te r .

On the other hand, while non-H ispan ic wh i tes accounted for two-thirds of the total U.S.

originations during the first three-year period, their share of the losses was 10 percent

less (basis points) at 56 percent.

An enorm ous 7 .7 percen t o f t he H i span i c mor t gage bor row ers du r i ng t he ea r l y

2005 t o l a t e 200 7 per i od l os t t he i r hom es t o f o rec losu re71 percen t g r ea te r t han

t he m odest 4 .5 pe rcen t r a te f o r non-H i span i c w h i t es .

The banks subpr ime m or tgage f raud

I t i s c lea r tha t the com b ined 7 .8 percen t average fo rec losure ra te fo r th e b lack and

L at i n o m i n o r i t y g ro u p s w a s 7 3 p erce n t g re a ter t h a n f o r t h e i r w h i t e co u n te rp ar t s .

The m a i n reason f o r t h i s d i sc repancy i s t ha t l ow - i ncome m i nor i t y g r oups had a

m uch h i gher share o f h i gh - i n t e res t r a te subpr i me m or tgage o r i g i na t i ons t han non-

H i span i c w h i t es .

Un fo r t u n a te l y , ve ry l a rg e n u mb e rs o f su b p r i m e m o r tg a g e s we re f r a u d u l en t l y

f o r ced o n to b o r ro w e rs w h o co u ld h a ve q u a l if i e d f o r a l o w- i n te re s t p r i m e ra te

m o r tg a g e . Th is w a s do n e so t h a t t h e b a n ks co u l d e arn a m u ch h i g h er r e tu r n t h a n

th e y w o u l d h a ve f r o m a p r i me ra te l o an . Bu t w h e n h o u se p r i ce s b e g an t o p l u n g e

e ar l y i n 2 0 0 7 t h o se su b p r i me b o r r o w e rs w e re u n a b l e t o car r y t h e f i n a n c ia l b u rd e n

o f a h igh - in te res t l oan .

As a resu l t , 16 .5 percen t o f the subpr im e loans o r ig ina ted be tw een ear l y 20 05 and

la te 2007 w ound up in comp le ted fo rec losures. The subpr im e fo reclosure

co mp l e t i o n ra te e xcee d ed t h e l o w 2 .3 p e rce n t r a te f o r l a rg el y p r i m e - ra te

co n ven t i o n a l mo r tg a g e s b y 1 4 .2 p e rcen t ( b a si s p o i n t s ) .

The 64 percen t subpr im e share o f a l l com p le ted fo rec losures be tw een January 1 , 2007

a n d Ja n u a ry 1 , 2 0 1 0 g ro ssl y o u tw e i g h s t h a t t yp e s 2 2 p e rce n t sh a re o f t o ta l m o r tg a g e

o r i g i n at i o n s b e tw e en e a r l y 2 0 0 5 a n d l a te 2 0 0 7 b y 4 2 p e rce n t ( b a si s p o i n t s ) .

To p u t i t a n o th e r w a y , t h e tw o - th i r d s f o re cl o su re co mp l e t i o n sh are i s a wh o p p i n g

th re e t i m e s t h e 2 2 p e rcen t o r i g i n a t i o n p o r t i o n !

There i s a c lose re lat ionsh ip be tw een the over -o r ig ina t ion o f subpr im e mor tgages

fo r A f r i can-Amer ican b lack and Lat ino fam i l i es and th ose g roups fo rec losure

ra tes . Betw een ear l y 2007 and la te 2009 i t i s est im a ted tha t b lack fam i l i es had

a l ready los t 240 t housand hom es, and H ispan ic fam i l i esw e re f o r ced t o g i ve u p


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336 t housand res idences in j us t a th r ee-year pe r iod . The comb in ed loss was 576

thou sandw el l over ha l f a mi l l i on . Those num bers con t inued to in crease dur ing

2 0 1 0 a n d 2 0 1 1 .

Those patterns of discriminatory mortgage lending have been the subject of major civil and

criminal investigations by the federal government and the attorneys-general of most of the

states that were seriously affected by the subprime mortgage crisis. This multi-state group

has been demanding a $26 billion payment from the large banks in order to settle those

lawsuitsan enormous sum. I t i s i n t e n d e d t h a t t h e p ro cee d s w i l l b e u sed t o h e l p

fa mi l i e s t h a t h a d b e e n v i ct i m i zed b y t h e f r a u d u l e n t su b p r i me m o r tg a g e p ra ct i ce s

o f th ose banks to recover enough o f t he i r f i nanc ia l so lvency to be ab le to pu r chase

a n o th e r h o me . Th e g ro ss t o ta l a mo u n t t h a t w i l l b e m a d e ava i la b l e f o r co n su m e r

assis tance w i l l be enorm ous!

Th e re v i va l o f t h e b l a ck a n d L at i n o f i r s t - t i me h o m e b u ye r sec to r w i l l b e v i t a l t o t h e

re cove ry o f b o th t h e e x i st i n g -h o m e sal e s a n d n e w -h o m e co n st ru c t i o n m a rke t s .

Dur ing th e hous ing boom o f the ear l y 2000s th e Hispan ic g roup in pa r t i cu la r

p ro v i d e d t h e e n orm o u s d em a n d f o r s t a r t e r h o me s t h a t p e rm i t t e d a l l ex i s t i n g -h o me

o w n e rs t o mo ve u p t h e t r a d eu p ch ai n . Du r i n g t h e 2 0 1 2 -2 0 1 5 p e r i od t h e y w i l l

p e r f o rm t h a t sa me v i t a l f u n ct i o n .

THE IMPACT OF THE RECOVERY OF THE SUBPRIME

MORTGAGE MARKET ON THE OVERALL MORTGAGE

MARKET INDICATORS, FIRST QUARTER, 2010 TO FIRST

QUARTER, 2012

Because the number of completed foreclosures of subprime mortgages was very high during

the three-year period between early 2007 and late 2009, during the first quarter of 2010

their indicators were at their worst state since the Great Depression in the 1930s.

Fo r tu n a te l y , o ver t h e n e x t t w o ye a rs t h e su b p r i me m o r tg a g e si t u a t i o n h a s i mp ro ve d

substan t ia l l y .

The recovery o f t he subpr ime m or tgage mark e t , f i r st quar te r , 2010 to f i r s t

quar ter , 2012

Fortunately,the subprime mortgage market did experience a strong recovery from the firstquarter of 2010 to the end of 2011, and especially from that point to the end of the first

quarter of 2012.

Th e t o t a l n u m b e r o f n o n - c u r r e n t s u b p r i m e l o an s p l u mm e te d b y -5 7 9 t h o u san d

o ve r t h e p a s t tw o ye a rsc lo se t o t w o - f i f t h s o f w h i ch h a p p e n e d i n t h e f i r s t q u a r te r

o f 2012 a lone !


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W hat does a ll o f t h i s m ean? Si mp l y t h i s . I t i s cl ea r t ha t t he dec reases in t he

n u m b e r s fr o m t h e f o u r t h q u a r t e r o f 2 0 1 1 t o t h e f i r s t q u a r t e r o f 2 0 1 2 g r e a t l y

exceeded t he quar t e r - t o -quar t e r r educ t i ons f o r t he p r ev i ous seven per i ods,

espec ia l l y when t he quar t e r l y ave rages are consi de red . Tha t i s wh y t h e f i r s t

quar t e r 2 012 shares o f t he t o ta l tw o-year dec reases f o r each i nd i ca to r a re so h i gh

f o r j u s t o n e q u a r t e r .

The subprime m or tgage d r i ve r o f t he improv ing overa ll m or tgage mark e t , f i r st

quar ter , 2010 to f i rs t quar t er , 2012

Th e i mp ro ve m e n ts i n t h e su b p r i me m o r tg a g e ma rke t o ve r t h e p a s t tw o ye ars w e re

th e p r i m a ry d r i ve r o f t h e b e t t e r n e w s i n t h e o ve ra ll ma rk e t f o r a l l t yp e s of

m o r tg a g e l o an s.

Altogether, the steep -432 thousand combined reduction for a l l t h re e t yp e s o f su b p r i me

de l inquenc ies over the full two-year period contributed a strong 29 percent of the -1.5

million plunge in the number for all types of mortgage loans nationwide.

As for l oans in the forec losure process, t h e -1 4 6 t h o u sa n d d ro p i n t h e su b p r i me

n u m b e r a cco u n te d f o r w el l ove r ha l f o f t h e n a t i o n w i d e d ro p f o r a ll mo r tg a g e

types. Th i s means t ha t t h e bu l k o f t he bad m or tgage paper t ha t h ad been

f r audu l en t l y dum ped i n t o t he secondary m or tgage m arke t i s now be i ng c l eaned

up a t a r ap i d pace .

THE POSITIVE IMPACT OF THE IMPROVING MORTGAGE

MARKET ON U.S. HOUSE PRICES AND HOME SALES

Th e re cen t s t r o n g i mp r o ve me n ts i n t h e U .S. mo r t g a g e ma rke t w e re al l ma d e

p o ssi b l e b y t h e d ra ma t i c 6 .6 m i l l i o n su rg e i n t o ta l n o n fa rm e m p l o yme n t b e tw e en

January , 2010 and May, 2012 .

As a resu l t , hom e p r i ces i n m a n y s ta te s t h a t h a d b e e n h a rd -h i t b y t h e 2 0 0 7 -2 0 1 1

hous ing cr i s i s a re beg inn ing to r i se again . The reason is that, with the removal of the

bad mortgage paper from the financial market, investors and regular household home

buyers now have much more confidence that the housing market will not be flooded with a

large number of foreclosed properties at depressed prices. For both groups that would be a

serious negative prospect.

For t una te ly , house p r i ces na t ionw ide have been r i s ing rap id l y over th e past year ,

and espec ial l y du r ing t he f i r s t quar t e r o f 2012 . The Federa l Housing Finance

Agency ( FHFA) pub l i shes the on ly re l i ab le purchase-on ly house p r i ce index fo r

s ing le - fami l y hom es th a t bo th th i s au thor and th e Federa l Reserve t rus t . Tha t

regu la to r y agency co l lects t he da ta f r om Fann ie Mae and Fredd ie Mac, by fa r t he

l a rg es t se co n d a ry m o r tg a g e ma rk e t co mp a n i e s i n t h e co u n t r y .


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Betw een Decemb er , 2011 and March o f 2012 one fu l l quar t e rthe t o ta l U .S. p r i ce

index jum ped by 1 .7 percen t . The 1 .8 percen t su rge be tw een February and March ,

2012 a lone accoun ted fo r 106 percen t o f the quar te r l y r i se . Th is m eans tha t t he

pace o f house p r i ce increases has been accele ra t ing rap id l y ov er t he past few

m o n t h s .

As a result of the steep rise in the first quarter and March, 2012 single-family house prices,

the increases from March, 2011 to March of this year were also healthy. For the entire

country the increase was a strong 2.7 percent.

How ever , i t i s im por t an t t o emph as ize tha t t he pace o f p r i ce increases has

a ccel e rate d d ra ma t i ca l ly d u r i n g t h e l as t tw o mo n t h s o f t h a t tw e l ve-m o n th p e r i o d .

As a resu l t , the re i s now a rea l iza t ion in the non- jud ic ia l sys tem s ta t es tha t ,

f i na l l y , the mar ke t i s s tab i l i z ing .

I t i s ve r y c l ear t h a t ou r Apr i l , 2011 f o recas t co r rec t l y p red i ct ed t h a t t h e rap i d pace

o f emp l oym ent g row th w ou l d p rov i de t he add i t i ona l househo l d i ncomes requ i red

t o l e t a l l boa t s r i se w i t h t he j obs i nc reases. These so -ca ll ed r i s ing boa t s i nc lude dec l in ing de l inqu enc ies and r i s ing h ouse pr i ces .

Those p r i ce inc reases w i l l pe rm i t hom e sa les t o r es ta r t , as cu r ren t ow ners w i l l

once aga i n be ab le t o r ecover enough equ i t y t o be ab l e t o a f f o rd t o m ove up t he

t r adeup cha i n t o a l a rge r , mor e expens i ve res i dence . Betw een March and Apr i l ,

2012 a l one , ex i s t i ng s i ng l e- f am i l y hom e sal es su rged by 120 t housand , an

enorm ous 3 .0 pe rcen t , t o 4 .1 m i l l ion a t a seasona ll y ad j us ted annu a l r a te . Over t h e

f u l l yea r be tw een Apr i l , 2011 and Apr i l , 2012 ex i s t i ng s i ng l es sa l es j um ped by a

w hopp i ng 370 t housandup by a s t r ong 10 pe rcen t .

Moreover , du r i ng t he pas t year t he na t i onw i de i nven to r y o f unso l d s ing l e - f am i l y

hom es p l unged by -520 t housand , f r om 2 .8 m i l l i on t o 2 .2 m i l l i on in Apr i l o f 2012 .

As a resu l t , t he m on ths supp l y o f i nven to r y d ropped f r om 8 .9 t o 6 .6 mon t hs l ast

Apr i la -26 percent p lung e.

A large part of the reason for the improvement in sales prices is that d is t ressed hom e

sales have now fallen from 37 percent in April, 2011 to 28 percent in April, 2012an

enormous decrease of -9.0 percent (basis points). Three-fifths of the April, 2012 share was

accounted for by a decrease in foreclosure sales. That drop confirms the discussion earlier

in this report that rising pre-foreclosure sales and a rapidly-dwindling 90-day plus

delinquency inventory have been shutting off the new mortgage entrants into the

foreclosure process.

A l l of t h i s m e a n s t h a t t h e re i s n o w a re tu rn t o n o rm a l h o me b u y i n g f o r o ccu p a n cy

by househo lds wh ose purchases have long been pu t o f f . As a resu l t , the i nves to r

share o f a l l pu rchases fel l by -1 pe rcen t ( bas is po in ts) f rom March , 2012 , to 20

percen t i n Apr i l . Th is t r end i s con f i rm ed by the 1 percen t r i se in the f i r s t - t i m e

hom e buyer share t o 3 8 p e rcen t i n Ap r i l , u p su b sta n t i a l ly f r o m o n e - th i r d i n

January , 2012 .


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As expec ted , t he genera l down t rend i n bo th t he l i st ed and t h e so -ca l led shadow

i nven to r y o f hom es in t he f o rec losu re i nven to r y h as caused t h e genera l hous ing

m arke t t o sh i f t d ram at i cal l y f r om a buyers t o a sel l er s marke t . As a resu l t , home

sa les pr i ces have been c l imbin g s tead i l y over t he past year , and espec ia l ly du r ing

t he f i r s t qu ar t e r o f 20 12 . The p r i ces o f ex i s t i ng s i ng l e- f am i l y hom es j um ped by

10 .4 pe rcen t be t w een Apr i l , 2011 and Apr i l , 2012 , and su rged by 21 p e rcen t on a non-seasona l l y ad j us ted bas i s be tw een March and Apr i l o f t h i s year .

As a resu l t , t he once-popu l a r underw a te r mor tgage m y th w i l l soon be f orgo t t en .


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PART TH REE

THE EFFECT OF THE SURGE IN THE UNAUTHORIZED

HISPANIC IMMIGRANT POPULATION OF THE UNITEDSTATES ON THE SINGLE-FAMILY HOUSING BOOM, 2002-

2006, AND THE POSITIVE IMPLICATIONS FOR 2012-2015

I n t roduc t ion

In just four years single-family detached housing starts in the United States plunged from a

record-high of 1.72 million in 2005 to a first all-time low of 445 thousand in 2009an

enormous drop of -1.3 million. In 2006 and 2007 the number had already begun to slip

gradually, as would normally have been expected in such a highly cyclical industry, following

3 consecutive years of super record-high numbers.

However, the precipitous drop to just 622 thousand single-family starts in 2008 was largely

caused by the severe recession which began in January of that year. As a result, between

January, 2008 and the January, 2010 low for the decade, the nations jobs total plummeted

by -8.5 million, before beginning to recover in February, 2010.

Although the downturn in single-family house construction was caused by a complicated

interaction of several forces, household job losses were far more responsible than any other

single factor.

The ev idence clea r l y show s tha t t he se r ious i ncomelossesw h i ch re su l t e d f r o msevered emp l oym ent w ere the d i rec t cause o f r i s ing mor tgage de l inquenc ies, bank

fo rec losure act ions and ev ic t i ons o f ow ners f rom the i r h om es, and a v i c ious cyc le

o f p lung ing h ouse p r i ces f rom c loseby ne ighborh oods to c i t i es and reg ions.

Fo r tu n a te l y , b e tw e en t h e Jan u a ry , 2 0 1 0 l o w a n d Ma y , 2 0 1 2 t o ta l p e rm a n e n t

non fa rm emp loym ent i n t he U.S. su rged by 6 .6 m i l l i on jobs on a non-seasona l l y -

ad jus ted bas is.

Of the th r ee face ts o f U .S. demograph ics tha t de te rm ine s ing le - fami l y hou s ing

sta r t sincreases in popu la t ion , househo ld fo rm at ions and emp loym entthe

n u m b e r o f j o b s t h a t p e o p le h o l d i s b y f a r t h e m o s t i mp o r t a n t . As t h e e mp l o ym e n t

t i de r i ses , a l l the o ther boa ts r i se w i th i t . Mor tg age fo reclosures d isappear ,

househo ld fo rm at ions increase , and consumers beg in to spend f ree ly . Th is i s

exact l y w ha t i s happen ing in the U.S. economy n ow .

I t i s r ea l l y ve ry s im p l e . I n o rde r f o r a househo l d head t o pu rchase a home o r hang

on to t h e one he a l r eady has , he mu s t have a paycheck . Over t he pas t tw o and

one-ha l f yea rs t he n um bers o f paychecks have been i nc reas i ng d ram at i cal l y .


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THE IMPACT OF THE MASSIVE INFLOW OF MEXICAN AND

HISPANIC IMMIGRANTS ON THE U.S. LABOR MARKET

What do we m ean by em ployment ?

Unfortunately, the general public is often very confused about the definition of

employment. Many think that it means t h e u n e m p l o y m e n t r a t e . It does not.

Th e u n e m p l o y m e n t r a t e i s t h e ra t i o o f t h e n u mb e r o f i n d i v i d u a l s w h o d o n o t

cu r re n t l y h a ve a j o b t o t he t o t a l l abor f o r ce . To be in the labor fo rce a person

m ust e i the r be em p loyed , o r be ac t i ve ly seek ing a job . In December, 2011 the 13.1

million individuals who were counted as unemployed were divided by the 153.9 million

people in the labor force to produce an unemployment rate of 8.5 percent.

Unfortunately, like all economic rate equations, the unemployment rate can often produce

erroneous results. Because the answer is the product of not one but two factorsa

numerator and a divisorthe calculated rate often tells us more about the factor that we

are not concerned about than the one that we are. Namely, the number of unemployed. If,

for some reason, the percentage decline in the number of unemployed in the numerator is

less than that for the labor force in the denominator, then the unemployment rate will

remain higher than it should, and vice versa.

The e f fec t o f unau thor i zed imm igra t ion on the labor fo rce and t he

unemployment ra te

Sometimes the decreases in the labor force and the unemployment rate are caused by

individuals becoming discouraged about their prospects of being able to find a job. As a

result, they quit looking for work.

On th e o th e r h a n d , p ro lo n g e d su rg es o f n e w e n t ra n t s i n t o t h e l a b or f o r ce f r o m

m a ss i ve i mm i g ra t i o n i n f l ow s ca n t e m p o ra r i l y p u sh u p t h e n u mb e r o f u n e m p l o yed

a n d t h e u n e m p l o yme n t r a te , s im p l y b e ca u se t h e re a re n o t ye t e n o u g h n e w j o b s t o

p ro v i d e e mp l o yme n t f o r e ve ryo n e .Ho we ve r , t h e re i s a ve ry h i g h p ro b a b il i t y t h a t

t h e re ce n t s t e e p d o wn w a rd t r e n d i n i m m i g ra t i o n d e mo g ra p h i cs i n t h e U .S. s in ce

2 0 0 7 w i l l d ra ma t i ca l ly s l o w t h e g ro w th ra te i n t h e l a b or f o r ce an d t h e n u m b e r o f

unem p loyed , a t l east fo r severa l years .

Betw een ear l y 2000 and l a t e 200 5 t he dua l su rges i n t he U .S. l abor f o r ce and t he

demand f o r s i ng l e- f am i l y houses can l a rge l y be cred i t ed t o t h e enormou s j um p i n t he i n f l ow s o f unau th or i zed i mm i g ran t s . Over f ou r - f i f t hs w ere Hi span i c , and

t h r ee - f ou r t hs o f t hose were f r om Mex i co . Dur i n

reaching the u.s. employment increase 'tipping point

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