With 8.5 million jobs lost and widespread foreclosures that have occurred since the Crash of 2008, does the addition of 250,000 jobs make a dent in the national  employment crisis? And what can be done to help those homeowners who have moved from the subprime crisis into a primary mortgage one?
According to Joseph Tracy, executive vice president and senior adviser to the president of the Federal Reserve Bank of New York, it is going to take a very long time to make up those lost jobs ”“ if it”™s even possible due to the shift in business structure and new technology that”™s come into play since those millions found themselves out of work.
Couple that sobering statistic with the fact that millions of  homeowners have maxed out their home equity, many finding themselves “upside down” as housing prices continue to slide. “Residential and commercial mortgages are tied together,” Tracy said. “Now, the other shoe has dropped,” referring to the overstock of commercial properties here in the Hudson Valley and throughout the state.
Tracy spoke to a full house at Pattern for Progress”™s “Housing the Hudson Valley: Forecasting the Future” program held June 13 at the Poughkeepsie Grand. It drew elected officials, business owners and real estate brokers from the Bronx to Columbia County.
With no strong market for jobs or housing, “We really can”™t push mortgage rates much lower, so we have to push income growth.”
Of the jobs that were created in the prior expansion, “if they are recreated, they are often not as well paying as they once were,” he said. “I do think there are reasons to be optimistic that the labor market is beginning to gain some traction. There will have to be improvement in the labor market, but holding that back is data that is showing the forming of new small firms is one of the dynamics that create jobs. Those are risky types of business, so banks will often not fund them.” Those new entrepreneurs who would traditionally borrow from equity or credit cards to get started have no pool of income, Tracy said.
“Commercial real estate where the residential boom really went bust is really hurting. Again, the formation of new businesses is being held back. We are talking to small businesses about their access to credit and what can be done to improve that.”
Many businesses completely re-engineered their businesses to survive the crash, particularly in the manufacturing sector where many upgraded to technology their former workers are not familiar with, Tracy said. Others cut their labor force, doing more with less.
People who borrowed against their home equity used it for constructive purposes ”“ paying for an education, making necessary upgrades or debt consolidation, Tracy said. “Others used it for consumption, like a new car or a vacation.” What the Federal Reserve has not been able to determine is if those homeowners have rebuilt the credit they consolidated since the crash.
If small businesses are the stimulant, is there any interest in foreign countries investing in the U.S.? “This Friday, I accompanied our president to the Brooklyn Navy Yard. …one of the things we heard consistently throughout the day ”“ while it took good policy from the city and state to provide that environment ”“ much of the funding has been coming from abroad. They don”™t tend to be huge scale investments, but they do help to get these small businesses up and running. We have heard similar stories from our district.”
Arizona, Nevada, Florida and parts of California were hit the hardest by the recession. “They have now become a very attractive destination for retirees. During the boom, there was remarkable inflow into those areas,” Tracy said. “There is some unevenness there, it is a challenge for everyone, but particularly a challenge for people in their mid-50s who have been out of work for one or two years being hired. Getting re-employed and being given an opportunity to recover financially. Younger households have a longer time frame to get their financial houses back in order. Many of the older workers lost a tremendous amount of equity; we are seeing rental vacancies going down and rentals going up. Do we have enough of rental housing for those who have lost their equity and damaged their credit? There will be a transition where we are seeing home ownership declining and rentals rising.”
John Rath, senior vice president for commercial lending in the lower Hudson Valley and chairman of Pattern for Progress, told Tracy all six of his children have left the Hudson Valley to live elsewhere. “Should we be concerned and should we focus our attention on that?”
“We need to be looking at that very important aspect,” Tracy said. “If there is a shift in demand for more affordable homes and rentals, do we have that to offer? We need to make sure there is financing for building rental apartments because  it is very difficult to securitize those types of loans. The Department of Housing and Urban Development is very concerned about the ability to finance new construction.” Can owner-occupied housing now vacant be converted to multifamily use? “We need to try to use the housing stock we have effectively,” Tracy said. “We need to look down the road and see if there is enough affordable housing. Builders have gotten the message to ”˜right-size”™ new housing construction but that will take many years to make a meaningful difference.”
“Homeowners who did everything right and are now being forced into an untenable situation. We need to do something to help these folks.”
