Unemployment and the Housing Market
There is a strong correlation between unemployment and the Housing Market.
When unemployment is rising, demand for buying a house will fall. If people are made unemployed they will be unable to afford mortgage payments. But, also, if people fear being made unemployed, they will avoid taking on the risk of a mortgage. Unemployment is currently low, but many expect a deterioration in economic circumstances.
In the last housing crash, two factors contributed to a sharp fall in house prices. These were
- Rising interest rates
- Rising unemployment (due to recession, which in turn was caused by rising interest rates)
Rising interest rates made mortgage payments unaffordable, and because nearly 2 million were made unemployed many others were forced to sell.
The current situation is a bit different. Interest rates are not high, but unemployment is rising and an increasing number of people will be forced to sell.
Unemployment and Negative Equity
Unfortunately, rising unemployment often occurs at a time of falling house prices. Therefore, those who lose their jobs and have a home repossessed, are likely to also have negative equity.
Unemployment and House Prices
Rising unemployment will contribute to lower house prices, especially when combined with another factor such as higher interest rates or shortage of finance.
The effect of Housing Market on Unemployment.
Falling house prices can exacerbate the problem of unemployment. When house prices fall, consumer spending declines leading to lower economic growth and therefore higher unemployment. Therefore there is a negative spiral effect of falling prices and unemployment.
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