Wednesday, March 02, 2011

Overhang

One of the oddest things about this part of the economic cycle has been how slow the recovery has been.  Even with massive (one might even call  them monumental) amounts of infusions of liquidity the unemployment rate remains well above 9% and the level of under-employment (which many think is a better indicator of the state of the economy) is even higher.

Here might be part of the explanation.  Of all the mortgages in the country - better than one in five have negative equity.   In five states the numbers are all above 31% (Nevada - 66.5%, Arizona - 48.6%, Florida - 45.5%, Michigan - 37.6%, and California - 31.6%).   Normally, as we go out of a recession, housing helps to lead the way but the overhang from the excesses of Fannie and Freddie and CDOs has put a damper on that by a lot.  Consider that the net effect of all these changes has been to wipe out six years of price appreciation.   That means that when workers want to move from one area in the country where there are no jobs to one where there are jobs, the consideration of that loss of equity limits the abilities of families to make decisions based on mobility.

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