First, subprime mortgages exploded and home prices crashed. Then, the financial markets fell apart. Will unemployment be the proverbial next shoe to drop on the already weakened U.S. housing markets? If so, the implications for real estate will be profound indeed.

Historically, employment and home sales have been inextricably linked: People who had good jobs with steady paychecks bought homes while people whose income wasn’t reliable weren’t given home loans. Strong employment was a good indicator of future home sales while rising unemployment was an equally sure sign of fewer home sales on the horizon.

The housing boom seemingly changed that paradigm as so many fundamentals of real estate were temporarily thrown out or turned upside-down. Stated-income loans, originally intended for people who had substantial assets but irregular income, meant that a job was no longer a prerequisite to buying a home. As the rate of homeownership accelerated and lenders became more aggressive, these risky loans were handed out like Halloween candy to anyone who was willing to sign the (often fraudulent) paperwork.

But now that credit has melted like a chocolate bar left too long in the sun, stated-income loans are decidedly out of style. That’s good because it means more of the people who buy homes should be better able to make their mortgage payments; and while this observation may sound pat or old-fashioned, the ability to pay is the best way to prevent another wave of foreclosures.

Yet this renewed relationship between employment and housing could present some serious problems for realty brokers, salespeople and homeowners. Some forecasters have suggested that housing may pull through the current economic doldrums if employment holds up. But so far, that "if" looks pretty darn big.

Unemployment is already on the rise, and joblessness is likely to put additional downward pressure on home sales and prices. Home buyers may be tempted to rejoice at the prospect of cheaper houses, but that glee may turn sour indeed when they find themselves out of work.

The bottom line is that jobs are rightfully and once again an issue of grave importance to real estate. People whose businesses and livelihoods depend on housing would do well to pay attention to the trends and plan accordingly.

Marcie Geffner is a freelance real estate reporter and former managing editor of Inman News.

Copyright 2008 Marcie Geffner. All rights reserved. No part of this article may be used or reproduced in any manner whatsoever without written permission of the author.

***

What’s your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.

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