Kenny Chesney's big hit "No Shoes, No Shirt, No Problems" should be changed to reflect today's economy and should be called "No Jobs, No Homes, Big Problems".
Today, Wall Street tumbled after yet another disappointing report on the housing market which has renewed worries about the U.S. economy.
Statistics released today showed that sales of previously occupied homes fell last month to their lowest level in 15 years which sent the Dow Jones industrial average down 150 points in morning trading and briefly dipped below 10,000 for the first time in seven weeks.
Steve Cochrane, an economist at Moody's Analytics discussing today's job market saying "it is slow, but it's still moving in the right direction," despite the fact that California has posted the third-highest unemployment rate in the nation, at 12.3 percent, which is the same as the prior month.
As recently noted on RE Insider, a popular real estate blog, people without jobs cannot buy homes, therefore home buyers continue to remain skittish about the value of homes and their concerns regarding jobs only adds to the worry that they might not have a job to pay the mortgage should they buy a home.
The unemployment rate in California still remains at an all time high and weekly claims for unemployment benefits have consistently risen in recent weeks.
The National Association of Realtors has reported that sales of previously occupied homes plunged 27 percent in July to a seasonal adjusted annual rate of 3.83 million houses in last month which is much worse than the 4.7 million sales estimate from Thomson Reuters and is the largest monthly drop on records dating back to 1968.
Despite the fact that mortgage rates are falling to record lows, after the home buyer tax credit expired at the end of April home sales have tumbled. Home sales did pick up in the spring when the government was offering the tax credits, however, when they came to an end the housing market has been hobbling ever since.
Furthermore, banks are being more selective in giving out mortgage loans which could ultimately freeze out many potential buyers further hindering the housing market. Though the average rate for a 30-year fixed mortgage has dropped to 4.42 percent, many people still cannot qualify because banks have tightened their lending standards so much.
As sales nationally have slowed, inventory of unsold homes on the market has grown to nearly 4 million in July which is a 12.5 month supply at the current sales pace, the highest level in more than a decade. A healthy level supply is about six months.
One aspect that is hurting the housing market is that buyers and sellers are in a standoff over prices. Sellers are reluctant to lower their prices while buyers are hesitating because they think home prices have yet to bottom out.
Aaron Zapata, a real estate agent in Brea, California said, "It really is a self-fulfilling prophecy. If all buyers perceive that home prices are coming down, then they will stop making offers and home prices will come down." Since foreclosures are about 10 times higher than before the housing bust, prices have continued to fall.
In order for this vicious cycle to end California needs to keep the jobs that are already here and needs to add more. When that finally happens then Kenny Chesney's song can go back to "No Shoes, No Shirt, No Problems."