On November 6, 2009, President Obama signed a bill to extend the tax credit for first-time homebuyers (FTHBs) through June 30, 2010. The bill also opens up opportunities for others who are not buying a home for the first time.
To learn what the new tax credit means to you and your clients, take a look at the concise overview below.
In addition, we’ve put together a script featuring wording you can cut and paste as needed to beat out your competition by connecting with clients who may be able to benefit from the new plan details!
View the Tax Credit Script Now!
TAX CREDIT OVERVIEW
Who Gets What?
First-Time Homebuyers (FTHBs): First-time homebuyers (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000
Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.
Current Owners: The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.
Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.
What are the New Deadlines?
In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.
What are the Income Caps?
The amount of income someone can earn and qualify for the full amount of the credit has been increased.
Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible
Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.
What is the Maximum Purchase Price?
Qualifying buyers may purchase a property with a maximum sale price of $800,000.
What is a Tax Credit?
A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual’s primary residence.
How Much are First-Time Homebuyers (FTHB) Eligible to Receive?
An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.
Who is Eligible fort FTHB Tax Credit?
Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible.
This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.
As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.
How Much are Current Home Owners Eligible to Receive?
The tax credit program includes a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.
Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?
No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.
Can a Taxpayer Claim a Credit if the Property is Purchased from a Seller with Seller Financing and the Seller Retains Title to the Property?
Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Some examples of this would include a land contract or a contract for deed.
According to the IRS, factors that would demonstrate the ownership of the property would include:
1. Right of possession,
2. Right to obtain legal title upon full payment of the purchase price,
3. Right to construct improvements,
4. Obligation to pay property taxes,
5. Risk of loss,
6. Responsibility to insure the property, and
7. Duty to maintain the property.
Are There Other Restrictions to Taking the FTHB Credit?
Yes. According to the IRS, if any of the following describe a homebuyer’s situation, a credit would not be due:
They buy the home from a close relative. This includes a spouse, parent, grandparent, child or grandchild. (Please see the question below for details regarding purchases from “step-relatives.”)
They do not use the home as your principal residence.
They sell their home before the end of the year.
They are a nonresident alien.
They are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
Their home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
They owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.
Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligible for the Credit?
Yes. As long as the person they buy the home from is not a direct blood relative, the purchase would be allowed.
If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will Their Child Still be Eligible for the Credit?
Yes, provided that the child meets the other requirements for the tax credit.
Monday, November 9, 2009
Friday, November 6, 2009
Jobless Rate Hits Double Digits!
The results are in. The Labor Department reported today that thre were 190,000 jobs lost in October, higher than the 175,000 job losses that were widely expected, but in line with what we have been saying. And as we have been forecating, the number that has been all over the media this morning is the Unemployment Rate rising to 10.2% - quite a bit higher than the 9.9% expected,and the highest Unemployment level since 1983. While this number is bad, what is even more concerning is the "real" unemployment rate being closer to 17.5%. This includes those who have not searched for a job for at least four weeks, known as "discouraged or detached" workers, as well as those desiring full time work but having to settle for part time, the "underemployed."
The Average Workweek came in at a record low of 33 hours, which highlights the present slow economic demand and underscores the fact mentioned above, that many people are working part-time, but would prefer full time work. Another consideration for the low work week could be productivity gains as well. The only ray of sunshine within this anemic report were the upward revisions for August and September, showing 91,000 fewer jobs lost than previously reported.
Let's remember, in order to just keep up with population growth-or to keep the ranks of the unemployed from rising-there must be 125,000 jobs created each month. So the latest report of 190,000 jobs lost, really means we have fallen behind by 315,000 jobs, just last month. Imagine this...I am a Mississippi State fan and Davis Wade Stadium on the campus of Mississippi State will hold almost 60,000 Bulldog fans. If you could fill Davis Wade Stadium three times with the number of people who lost their jobs last month, you can get an idea of the enormity of this number!
The Homebuyers Tax Credit jumped its last hurdle yesterday, as both the house and Senate have passed the bill and it now awaits the Presidents signature,which is expected today or tomorrow. And while I have been expecting this to happen for some time and have given you many details, let's go over them one more time. For First Time Homebuyers or those who have not owned a home within 3 years, the tax credit remains at $4,000 for singles and $8,000 for couples, with income restrictions maxing out at $125,000 and $225,000 respectively. Current homeowners-those defined as having owned a home for five of the previous eight years-can now also take advantage of a credit, with slightly lesser amounts of $3,250 for singles and $6500 for couples, with the income restrictions the same as described above. To qualify for the new program, purchase agreements need to be signed by April 30th and close by June 30th.
The Average Workweek came in at a record low of 33 hours, which highlights the present slow economic demand and underscores the fact mentioned above, that many people are working part-time, but would prefer full time work. Another consideration for the low work week could be productivity gains as well. The only ray of sunshine within this anemic report were the upward revisions for August and September, showing 91,000 fewer jobs lost than previously reported.
Let's remember, in order to just keep up with population growth-or to keep the ranks of the unemployed from rising-there must be 125,000 jobs created each month. So the latest report of 190,000 jobs lost, really means we have fallen behind by 315,000 jobs, just last month. Imagine this...I am a Mississippi State fan and Davis Wade Stadium on the campus of Mississippi State will hold almost 60,000 Bulldog fans. If you could fill Davis Wade Stadium three times with the number of people who lost their jobs last month, you can get an idea of the enormity of this number!
The Homebuyers Tax Credit jumped its last hurdle yesterday, as both the house and Senate have passed the bill and it now awaits the Presidents signature,which is expected today or tomorrow. And while I have been expecting this to happen for some time and have given you many details, let's go over them one more time. For First Time Homebuyers or those who have not owned a home within 3 years, the tax credit remains at $4,000 for singles and $8,000 for couples, with income restrictions maxing out at $125,000 and $225,000 respectively. Current homeowners-those defined as having owned a home for five of the previous eight years-can now also take advantage of a credit, with slightly lesser amounts of $3,250 for singles and $6500 for couples, with the income restrictions the same as described above. To qualify for the new program, purchase agreements need to be signed by April 30th and close by June 30th.
Friday, October 30, 2009
Home Buyer Advantage (Buying Foreclosures)
Mississippi Home Corporation is participating in a program Congress established, the Neighborhood Stabilization Program. What this program offers is government grants of up to $39,999 which is to be used to reduce the principle of a mortgage when a person purchases a foreclosed home. The home has to be bank owned, bank holding company, government agency, or authorized real estate owned designated entitiy.
Here is how it works: A buyer can locate a foreclosed property using a local Realtor. Contract to purchse, then apply through your local lender, like
Mortgage 1st, Inc., for the loan. If you agree to live in the home for five (5) years, you can obtain a grant of $14,999, which can be applied at closing to reduce your principle owed. For example, you find a foreclosed property and you work out a contractural price of $150,000 and obtain an FHA loan with 3.5% downpayment. The loan amount would be $144,750, plus 1.75% MI added back to the loan, for a loan amount of $147,283.13. At the closing table you will be wired $14,999, which will reduce your principle to $132,284.13! That would make your monthly payment much less. The kicker is you must qualify for the $147,283.13 loan amount! You would save $92.97 per month on your payment. You don't have to live in the home for five years, but if you move before completing your occupancy period, then you will pay back a portion of the grant based on the number of months you lived in the home. The longer you live in the home, the less money you pay back. Live there the full five years, you owe nothing.
If you agree to live in the home for 10 years, you can receive another grant of up to $25,000 plus the $14,999 which adds up to $39,999. This grant is "Credit Score" driven, which means if your credit score is above 750, you can earn the full $39,999 for living there 10 years. The amount of the grant reduces the lower your credit scores are.
Income Limits.
Your income has to fall within certain ranges, depending which county you purchase the home. If you purchase a home in either Hinds, Rankin, or Madison Counties, and you are single your income cannot be above $47,650. If you are married, a family of two the amount rises to $54,450. With one child $61,250, and two children it goes to $68,050 etc. Call me for exact details. My phone number is 601-977-6228.
This appears to be a good, workable program. The catch is you must live in the home for either five (5) or ten years, which ever amount you decide to take.
Here is how it works: A buyer can locate a foreclosed property using a local Realtor. Contract to purchse, then apply through your local lender, like
Mortgage 1st, Inc., for the loan. If you agree to live in the home for five (5) years, you can obtain a grant of $14,999, which can be applied at closing to reduce your principle owed. For example, you find a foreclosed property and you work out a contractural price of $150,000 and obtain an FHA loan with 3.5% downpayment. The loan amount would be $144,750, plus 1.75% MI added back to the loan, for a loan amount of $147,283.13. At the closing table you will be wired $14,999, which will reduce your principle to $132,284.13! That would make your monthly payment much less. The kicker is you must qualify for the $147,283.13 loan amount! You would save $92.97 per month on your payment. You don't have to live in the home for five years, but if you move before completing your occupancy period, then you will pay back a portion of the grant based on the number of months you lived in the home. The longer you live in the home, the less money you pay back. Live there the full five years, you owe nothing.
If you agree to live in the home for 10 years, you can receive another grant of up to $25,000 plus the $14,999 which adds up to $39,999. This grant is "Credit Score" driven, which means if your credit score is above 750, you can earn the full $39,999 for living there 10 years. The amount of the grant reduces the lower your credit scores are.
Income Limits.
Your income has to fall within certain ranges, depending which county you purchase the home. If you purchase a home in either Hinds, Rankin, or Madison Counties, and you are single your income cannot be above $47,650. If you are married, a family of two the amount rises to $54,450. With one child $61,250, and two children it goes to $68,050 etc. Call me for exact details. My phone number is 601-977-6228.
This appears to be a good, workable program. The catch is you must live in the home for either five (5) or ten years, which ever amount you decide to take.
Thursday, October 29, 2009
The Market and some Truth!
"Only two things are infinite: the universe and human stupidity, and I'm not sure about the former." Albert Einstein. The media is all giddy over this morning's news, and the talking heads on CNBC are clamoring that the recession is behind us. But those in the know understand that there's more to the economic data than just the headlines. While others might simply report the numbers - let's take a deeper look and see things as they really are.
The Commerce Department reported that the "Advanced" (the first of three readings) 3rd Quarter Gross Domestic Product (GDP) rose by 3.5%, higher than estimates of 3.2%. This was the first GDP gain in a year and the strongest reading in two years. "Holy Mackerel" is all they could say on CNBC...suggesting that the economy is back, and the stimulus plans have successfully bought our way out of the recession. But hold on - if we were to remove the government subsidized "Cash for Clunkers" program from last quarter's GDP, the reading would have been a lot lower...closer to the tune of 1.9%. Further - if we removed the $8,000 first time home buyer tax credit, the GDP number would have been lower still! Remember, these are temporary programs with temporary results...so once the "temporary" life support is unplugged, the numbers will be far worse, and more importantly, will be realistic.
And the euphoria continued, as a leading indicator on the health of the labor market, Initial Jobless Claims, was reported "Less Bad" than expected. Here we go again, as the media and other commentators lose their mind with excitement over these numbers. Check this out...the Initial Jobless Claims were "just" 531,000 in the latest week, slightly worse than the 525,000 that was expected. So more than half a million people each continue to get pink slips and shown the door - is this rally good news? The Continuing Jobless Claims number fell to a 7 month low, revealing that "only" 5.8 Million people are collecting unemployment benefits. The media jumped all over this dramatic drop in Continuing claims, spinning it as being an encouraging sign for the labor market. This is flat wrong - so many people have been receiving unemployment benefits for so long, that their benefits are expiring, without them having found new jobs. As I've been saying - this number is so awful, that to the inexperienced and untained eye, it actually appears to be good. And think about this - if the labor market were indeed improving, and the signs appear to be encouraging, then why the urgency to extend the unemployment benefits?
Some encouraging news on the extension of the $8,000 tax credit...while it is not a done deal, as it still must be reconciled between the House and Senate and then voted on for final approval, it's looking good. And it's not only looking good for the extension, but there are some additional enhancements to the credit in the works as well. Yesterday, the Senate reached an agreement to extend the $8,000 tax credit for first time homebuyers. They also added a $6,500 tax credit for other primary home purchasers, meaning not just limited to first time home buyers. They also raised the qualifying income limits in a very meaningful way - singles were increased from $75,000 to $125,000, and joint taxpayers from $150,000 to $250,000. Buyers must have executed purchase agreements in hand by April 30th, and then will have until June 30th to close. More details are likely to come, and changes could be made as reconciliation and voting takes place! Stay tuned...!
The Commerce Department reported that the "Advanced" (the first of three readings) 3rd Quarter Gross Domestic Product (GDP) rose by 3.5%, higher than estimates of 3.2%. This was the first GDP gain in a year and the strongest reading in two years. "Holy Mackerel" is all they could say on CNBC...suggesting that the economy is back, and the stimulus plans have successfully bought our way out of the recession. But hold on - if we were to remove the government subsidized "Cash for Clunkers" program from last quarter's GDP, the reading would have been a lot lower...closer to the tune of 1.9%. Further - if we removed the $8,000 first time home buyer tax credit, the GDP number would have been lower still! Remember, these are temporary programs with temporary results...so once the "temporary" life support is unplugged, the numbers will be far worse, and more importantly, will be realistic.
And the euphoria continued, as a leading indicator on the health of the labor market, Initial Jobless Claims, was reported "Less Bad" than expected. Here we go again, as the media and other commentators lose their mind with excitement over these numbers. Check this out...the Initial Jobless Claims were "just" 531,000 in the latest week, slightly worse than the 525,000 that was expected. So more than half a million people each continue to get pink slips and shown the door - is this rally good news? The Continuing Jobless Claims number fell to a 7 month low, revealing that "only" 5.8 Million people are collecting unemployment benefits. The media jumped all over this dramatic drop in Continuing claims, spinning it as being an encouraging sign for the labor market. This is flat wrong - so many people have been receiving unemployment benefits for so long, that their benefits are expiring, without them having found new jobs. As I've been saying - this number is so awful, that to the inexperienced and untained eye, it actually appears to be good. And think about this - if the labor market were indeed improving, and the signs appear to be encouraging, then why the urgency to extend the unemployment benefits?
Some encouraging news on the extension of the $8,000 tax credit...while it is not a done deal, as it still must be reconciled between the House and Senate and then voted on for final approval, it's looking good. And it's not only looking good for the extension, but there are some additional enhancements to the credit in the works as well. Yesterday, the Senate reached an agreement to extend the $8,000 tax credit for first time homebuyers. They also added a $6,500 tax credit for other primary home purchasers, meaning not just limited to first time home buyers. They also raised the qualifying income limits in a very meaningful way - singles were increased from $75,000 to $125,000, and joint taxpayers from $150,000 to $250,000. Buyers must have executed purchase agreements in hand by April 30th, and then will have until June 30th to close. More details are likely to come, and changes could be made as reconciliation and voting takes place! Stay tuned...!
Tuesday, October 6, 2009
Market Moving Sideways
Mortgage Bonds are trading slightly lower, but off the worst levels of the session.
The big news so far today comes from down under, where the Reserve Bank of Australia unexpctedly hiked the country's benchmark interest rate by .25%, from 3.0% to 3.25%, saying they felt it was safe to start cutting back on economic stimulus. Further...they also commentd that more hikes are likely to be coming. Stocks are higher around the globe, as Traders see this as a signal that the global economy is on better footing. And as a result of Stocks moving higher, Mortgage Bonds have been pressured lower.
The hike from Australia has also pressured the US Dollar lower, based on the perception that other nations may be poised to more rapidy raise interest rates, making heir currency more attractive against the Dollar. The weak Dollar, has pushed oil and other commodities such as precious metals higher as well. In fact, Gold hit a record high earlier this morning, reaching $1040.00/ounce!
Australia looks to be in a better position to hike rates than the US does, and one big reason is the current unemployment rate in Australia, which now stands at 5.8%. This is elevated from their last year's very lean 4.2%, but still under their 30-year average of 7.2% for the country. With our own unempoyment rate near 10% and rising...we just don't see how the Fed will be able to hike rates in the very near future.
Stocks will give us a better picture as to how well corporate America and the economy is doing, when 3rd Quarter earnings start to be released tomorrow. If earnings and/or future guidance disappoint, Stocks could lose ground in a hurry...and this could help Mortgage Bonds.
I'm looking for Congress to extend the First Time Home Buyer Tax Credit past the November 30th deadline. If this happens, home sales should remain steady through the first quarter of 2010. One way to get this economy rolling would be to eliminate the Capitol Gains Tax for two years. That would spur investors to invest and create jobs. I don't think the present administration will do anything such as that...it makes too much sense!
The big news so far today comes from down under, where the Reserve Bank of Australia unexpctedly hiked the country's benchmark interest rate by .25%, from 3.0% to 3.25%, saying they felt it was safe to start cutting back on economic stimulus. Further...they also commentd that more hikes are likely to be coming. Stocks are higher around the globe, as Traders see this as a signal that the global economy is on better footing. And as a result of Stocks moving higher, Mortgage Bonds have been pressured lower.
The hike from Australia has also pressured the US Dollar lower, based on the perception that other nations may be poised to more rapidy raise interest rates, making heir currency more attractive against the Dollar. The weak Dollar, has pushed oil and other commodities such as precious metals higher as well. In fact, Gold hit a record high earlier this morning, reaching $1040.00/ounce!
Australia looks to be in a better position to hike rates than the US does, and one big reason is the current unemployment rate in Australia, which now stands at 5.8%. This is elevated from their last year's very lean 4.2%, but still under their 30-year average of 7.2% for the country. With our own unempoyment rate near 10% and rising...we just don't see how the Fed will be able to hike rates in the very near future.
Stocks will give us a better picture as to how well corporate America and the economy is doing, when 3rd Quarter earnings start to be released tomorrow. If earnings and/or future guidance disappoint, Stocks could lose ground in a hurry...and this could help Mortgage Bonds.
I'm looking for Congress to extend the First Time Home Buyer Tax Credit past the November 30th deadline. If this happens, home sales should remain steady through the first quarter of 2010. One way to get this economy rolling would be to eliminate the Capitol Gains Tax for two years. That would spur investors to invest and create jobs. I don't think the present administration will do anything such as that...it makes too much sense!
Thursday, October 1, 2009
Mortgage Bonds Higher
Mortgage Bonds are trading higher in response to worse than expected employment data, and as a result of weakness in Stocks.
Initial Jobless Claims increased by 17,000 last week, to 551,000, which was higher than the 535,000 expected. Huge numbers of individuals filing for first time Unemployment benefits underscores the weakness in the labor market which I discussed yesterday. Just think about it - well over half a million people were let go from their jobs last week!
Thanks to the "Cash for Clunkers" program, Personal Spending for August rose at its fastest monthly pace in almost eight years. This was positive economic news, but the market is taking it with a grain of salt, as that particular stimulus has since been removed.
There is no inflation at the moment - the August Core Personal Consumption Expenditure Index was 1.3%, down from 1.4% reported the previous month. The tame level of inflation has been friendly to Bond prices, but at some point in the future, inflation will be on the rise, which will cause rates to move higher.
Some good news for housing, as Pending Home Sales were up big at 6.4%, far above expectations of a modes 1% rise. Some of the rise is likely due to folks working fast to take advantage of the First Time Homebuyer Tax Credit, currently set to expire on November 30th. I am going to predict that this program will be extended for six months...and look for an announcment to confirm this soon!
I think bond prices will remain at current levels, giving nod to interest rates staying in the low 5% range for 30 year fixed rate loans, as least for the next three to four weeks.
Initial Jobless Claims increased by 17,000 last week, to 551,000, which was higher than the 535,000 expected. Huge numbers of individuals filing for first time Unemployment benefits underscores the weakness in the labor market which I discussed yesterday. Just think about it - well over half a million people were let go from their jobs last week!
Thanks to the "Cash for Clunkers" program, Personal Spending for August rose at its fastest monthly pace in almost eight years. This was positive economic news, but the market is taking it with a grain of salt, as that particular stimulus has since been removed.
There is no inflation at the moment - the August Core Personal Consumption Expenditure Index was 1.3%, down from 1.4% reported the previous month. The tame level of inflation has been friendly to Bond prices, but at some point in the future, inflation will be on the rise, which will cause rates to move higher.
Some good news for housing, as Pending Home Sales were up big at 6.4%, far above expectations of a modes 1% rise. Some of the rise is likely due to folks working fast to take advantage of the First Time Homebuyer Tax Credit, currently set to expire on November 30th. I am going to predict that this program will be extended for six months...and look for an announcment to confirm this soon!
I think bond prices will remain at current levels, giving nod to interest rates staying in the low 5% range for 30 year fixed rate loans, as least for the next three to four weeks.
Wednesday, September 30, 2009
Unemployment numbers Not Good!
The monthly ADP Report, which gives us a look at the private sector job market, showed private employers cut 254,000 jobs in September, worse than expectations of a 200,000 drop. This release doesn't always match up with the Labor Department's official Jobs Report, but this news doesn't bode well for this Friday's important number. As of this moment, econimists are expecting a loss of 180,000 jobs for the month of September - stay tuned, as tomorrow I'll outline my Jobs Report Strategy headed into Friday's Jobs Reprt.
It's amazing to see people talking about the "good news" in jobs. Maybe because the employment news over the past year has been so horrible...just plain bad news is being seen as good - but we can't fall prey to that kind of thinking. Let's unpack some of the data. The population is growing, therefore the workforce is growing. There are 150M people in the workforce, and that number grows by about 1% or 1.5M people per year - simply due to population growth. Just to keep pace with that, the US needs to create about 125K jobs per month. So realistically, a loss of 200,000 jobs actually means we are falling 325,000 jobs behind for just one month...which is enormous. Now consider that nearly 10% of the workforce is unemployed - that's 15 million people - a huge number of folks who are without jobs. And many people are not even counted in that data...if you haven't looked for work in four weeks, you are removed from the ranks of "officially unemployed" people - but you might be discouraged, ill, dealing with family issues and therefore not seeking work. Taking those people into consideration brings actualy Unemployment rates to about 11%. Then going on farther, and counting the folks who have had to settle for part time work, as no full time positions were available - this brings the real rate of unemplooyment to about 17%! This is a whopping 23M people who are, for all intents and purposes - unemployed. This is more than the population of Texas, or New York, or Florida...or actually any other state in the US other than California.
So how do we get back to the forty year average rate of 6%? And remember-for the past 15 years, which includes the 2001-2002 recession, the very worst rate of unemployment seen was about 6%. We'd have to see a drop in unemployment of 4%...which means 6M more people need jobs. If the target to reach this was over 5 years, the US would need to create 100,000 more jobs per month-ie: 6 million people divided by 60 months= 100,000 jobs per month. PLUS don't forget, we need at least 125,000 additional jobs just to keep pace with population growth. This means the US needs to add 225,000 jobs per month minimum, consistently over the course of five straight years, just to get back to what we've become accustomed to being a normal level of unemployment.
In the past 10 years-there was only one year when this level was achieved. It was 2006, during very good times, when we grew by 232,000 jobs per month on average over the course of the year. During the past 20 years, the average growth rate has been 91,000 jobs per month-and the very best 10 years were from 1991 - 2000, when we averaged 150,000 per month. So how do we get to 225,000 jobs on average per month for the next five years? Bottom line, we won't. Expect higher unemployment rates to persist. The market euphoria we see happening when a lousy jobs number comes out, is just plain dumb. And eventually, there will come a time when more intelligent thinking will take place-and a bad number will still be considered a bad number. So...the optimistic thinking that the economy is improving will likely temper over time, probaby keeping Stocks in check, in turn benefiting Bonds, and help keep mortgage rates below 7%...that is, until inflation comes around, as high unemployment and inflation together will create a very challenging environment! Remember Jimmy Carter?
It's amazing to see people talking about the "good news" in jobs. Maybe because the employment news over the past year has been so horrible...just plain bad news is being seen as good - but we can't fall prey to that kind of thinking. Let's unpack some of the data. The population is growing, therefore the workforce is growing. There are 150M people in the workforce, and that number grows by about 1% or 1.5M people per year - simply due to population growth. Just to keep pace with that, the US needs to create about 125K jobs per month. So realistically, a loss of 200,000 jobs actually means we are falling 325,000 jobs behind for just one month...which is enormous. Now consider that nearly 10% of the workforce is unemployed - that's 15 million people - a huge number of folks who are without jobs. And many people are not even counted in that data...if you haven't looked for work in four weeks, you are removed from the ranks of "officially unemployed" people - but you might be discouraged, ill, dealing with family issues and therefore not seeking work. Taking those people into consideration brings actualy Unemployment rates to about 11%. Then going on farther, and counting the folks who have had to settle for part time work, as no full time positions were available - this brings the real rate of unemplooyment to about 17%! This is a whopping 23M people who are, for all intents and purposes - unemployed. This is more than the population of Texas, or New York, or Florida...or actually any other state in the US other than California.
So how do we get back to the forty year average rate of 6%? And remember-for the past 15 years, which includes the 2001-2002 recession, the very worst rate of unemployment seen was about 6%. We'd have to see a drop in unemployment of 4%...which means 6M more people need jobs. If the target to reach this was over 5 years, the US would need to create 100,000 more jobs per month-ie: 6 million people divided by 60 months= 100,000 jobs per month. PLUS don't forget, we need at least 125,000 additional jobs just to keep pace with population growth. This means the US needs to add 225,000 jobs per month minimum, consistently over the course of five straight years, just to get back to what we've become accustomed to being a normal level of unemployment.
In the past 10 years-there was only one year when this level was achieved. It was 2006, during very good times, when we grew by 232,000 jobs per month on average over the course of the year. During the past 20 years, the average growth rate has been 91,000 jobs per month-and the very best 10 years were from 1991 - 2000, when we averaged 150,000 per month. So how do we get to 225,000 jobs on average per month for the next five years? Bottom line, we won't. Expect higher unemployment rates to persist. The market euphoria we see happening when a lousy jobs number comes out, is just plain dumb. And eventually, there will come a time when more intelligent thinking will take place-and a bad number will still be considered a bad number. So...the optimistic thinking that the economy is improving will likely temper over time, probaby keeping Stocks in check, in turn benefiting Bonds, and help keep mortgage rates below 7%...that is, until inflation comes around, as high unemployment and inflation together will create a very challenging environment! Remember Jimmy Carter?
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