California recovery depends on housing
There's one big reason why foreclosure reforms that encourage banks to redo loans for "underwater" homeowners are a must for California, and soon: This state's overall economy and employment levels simply cannot recover to pre-recession status until the foreclosure crisis ends.
And the tide of foreclosures has shown no sign of abating lately, particularly in previous high-growth areas such as the Inland Empire of Riverside and San Bernardino counties, the high desert portions of Los Angeles County and several Central Valley counties that were among the fastest growing places in America through most of the last decade.
Places like Moreno Valley, Merced, Stockton and Fresno grew immensely in large part because of easy money made available by banks that demanded little or no down payment on houses and then sold off the mortgages they wrote, helping cause the Wall Street debacles of the last four years.
That's had a wide impact; thousands of homes now sit vacant after their occupants either were forced out via foreclosure or abandoned houses and mortgages when property values fell to the point where loan amounts topped home values, putting them figuratively under water.
With so many houses vacant, or even derelict, there is little or no demand for new housing. That means there's little or no new residential construction underway or in prospect. This has proven disastrous for businesses that sell everything from appliances to carpeting, lumber and concrete.
No other state over the last century has been as dependent as California on steady construction of new homes. That's the main reason California's unemployment rate skyrocketed from about 7 percent in 2007 to more than 12 percent last year and remains well over 11 percent today.
Economic forecasters don't say so explicitly, but this is also why every recent prediction indicates this state's recovery from recession will keep trailing after the rest of America.
Foreclosures and the resulting construction slump are also the main reasons California unemployment is almost 50 percent higher than that of Texas, the state to which we are most often compared. Texas, unlike California, has no serious foreclosure or walking-away-from-mortgages crisis, mostly because housing prices never skyrocketed they way they did here between 1990 and 2007, meaning few Texans are under water.
Meanwhile, the building bust is choking the job market. In the 12 months ending in mid-June, California lost more than 74,000 construction jobs, reports the federal Department of Labor. That was on top of similar losses in each of the previous three years. Last September, the Associated General Contractors of America reported California construction employment was off by almost 51,000 jobs from the preceding year. Put these numbers together, and they suggest the construction industry has lost more than 250,000 jobs in this state since the foreclosure crisis began.
That doesn't even count all the
out-of-work real estate brokers, carpet salespeople, air conditioning installers, furniture salespeople, fence builders and more in myriad other construction and remodeling fields.
Meanwhile, commercial and industrial construction shows some small signs of recovery, adding 10,000 jobs last April alone, for a net gain of about 5,000 construction jobs in that month. In short, while commercial construction looked up a little, residential construction was still way down.
California has been so dependent on homebuilding for so long that its virtual disappearance has led to an inevitable nightmare. That's also been disastrous for state government and its programs, from gang prevention to parks and highway maintenance.
Not only is there virtually no revenue anymore from capital gains taxes on real estate sales, but folks who have been foreclosed upon often find their financial losses are tax deductible, further reducing the state's tax take. It's no wonder deficits have been at record levels for the last three years.
Said Ken Simpson, chief economist for the national contractor's group, "The construction industry may have stopped bleeding as many jobs, but there is no sign that employment levels will bounce back. We are unlikely to see significant increases in construction for the foreseeable future."
That means California needs actions that can somehow alter the foreseeable future. Foremost among these should be mortgage loan reforms, laws compelling banks to work with underwater homeowners on restructuring payments so that homeowners won't be on the hook each month for more than they'd pay to rent something similar to their current houses. There are no signs Congress will do anything like this, so it may be up to state legislators to act.
Without this kind of move, there is no end in sight to the foreclosure crisis, high unemployment or the persistent recession.