Foreclosures Still Present Danger to Recovery

Friday, 21 Dec 2012 07:41 AM

By Barry Elias

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Foreclosures still present a danger to economic recovery, according to recent data released by the Local Initiatives Support Corp., the Urban Institute and the Center for Housing Policy.

Mortgages delinquent by 90 days or more declined from 5.5 percent in December 2009 to 3.5 percent in September 2012. However, the foreclosure rate remains near an all-time high of 6 percent. More troubling is the increasing foreclosure inventory — due to more starts versus completions.

Since 1948, the average length of unemployment ranged between 10 and 20 weeks. Today it is near 40 weeks, according to the U.S. Census Bureau. This record-high, long-term unemployment has kept the delinquency and foreclosure rates very high.

As the foreclosure-clearing process is extended, employment mobility is hindered, since job seekers are less able to explore employment opportunities in different geographical locations. Less absorption of the labor supply detracts from economic activity, thereby lowering tax revenues and increasing social program expenditures, which add to the national debt and debt-service costs.

The most effective short-term solution would be a reduction in the corporate tax rate and hiring tax credits. This would encourage business investment in labor and infrastructure. Monetary velocity would accelerate, causing income growth and enhanced opportunities.

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