FORECLOSURE RATE LIKELY TO INCREASE AS THE FEDERAL RESERVE RAISE THE UNEMPLOYMENT FORECAST ONCE AGAIN

Federal Reserve policymakers are projecting the unemployment rate to hit the 10.1 percent mark by 2010. That’s an increase from their latest projections in April. The fed predicted the unemployment rate will reach between 9.2 and 9.8 percent by the fourth quarter of 2009. However, what is alarming is that in June, the actual rate had already reached 9.5 percent, causing many officials to raise their forecast. Even Vice President Joe Biden and the rest of the Obama Administration admit to have “misread how the bad the economy was” and that a 9.5 percent unemployment rate “is much too high.” Some Fed officials had the forecast going as high as 10.6 percent by next year.

In a recent conference with the UCLA Anderson Forecast, the L.A. Times reports the jobless rate will reach 10.5 percent next year and an astonishing 11.9 percent in California by the middle of 2010. The nation has not seen this high of an unemployment rate in 26 years, when it hit 10.8 percent at the end of 1982.

Federal Reserve officials did predict the economy to shrink between 1 and 1.5 percent, an improvement from their latest predictions of 1.3 and 2 percent downfall. However, that just means that it will take longer for the economy to recuperate. The fed reported that although unemployment will continue to soar within the next two years, the economy on the other hand will begin to improve very slowly by the end of this year. In fact, it won’t fully recover for about five or six more years according to officials.

Many predict the same for Real Estate financials. The recovery of credit markets and banking institutions will improve gradually. The rate of the recovery will be sluggish until the end of 2010 and begin to see growth by 2011.

What does this all mean for homeowners? Well if more people are going to be out of a job that means more homeowners won’t be able to afford their payments. The Obama Administration launched a program in March that assisted nine million homeowners to avoid foreclosure by refinance or loan modification, lowering their monthly payments. However, even if payments are lowered, without a job nobody will be able to make any payments.

Even though the real estate market saw an increase of sales, 51.1 percent of those sales were foreclosures. In fact, between 1.5 and 1.8 million homeowners fell behind in their loans and were threatened to losing their homes this year. Almost four percent of homeowners are in foreclosure nationwide. California accounts for a stunning 135,431 homeowners with notices of default in the first quarter, an increase of 11% from the earlier peak in the second quarter of 2008, according to real estate information service MDA DataQuick.

In a recent AP analysis, the relationship between rising unemployment and foreclosures is growing, more than 3,100 U.S. counties found a much stronger link between foreclosure rates and unemployment this year than in 2007. The highest unemployment rates are seen in the state of California, cities like Merced, Modesto and Fresno.