Since Richard Brown lost his job to the recession and his Boston home to foreclosure a year ago, he’s been working short-term consulting assignments until he gets back on his feet. In the meantime, he’s been “couch surfing.”
“I’ve lived with my brother, my cousin, my friend and my dad,” he said. “The IRS keeps calling me, asking me: ‘What’s your address?’ And I say, ‘What week is this?’”
Armed with college degree and an MBA, Brown, 49, built a solid resume over three decades as a corporate controller for several Fortune 500 companies, including W.R. Grace and Wal-Mart, before launching his own global consulting business with clients in Europe and Mexico. But when the Panic of 2008 sent clients scrambling, he was unable to keep up with a jump in his mortgage payments and lost his home to foreclosure.
Brown represents one of the more than 1.2 million households lost to the recession, according to a report issued this week by the Mortgage Bankers Association that looked at data between 2005 and 2008. That number doesn’t include information from 2009, when job losses and foreclosures continued to rise.
So it's likely that the full impact of the 8.4 million jobs lost and nearly three million homes foreclosed on since the recession began has taken an even bigger toll on the number of American households.
“Given the depth of the downturn in 2009, and the ongoing weakness in the job market through the beginning of this year, this study gives no reason to expect that household formation has picked up at all," said Gary Painter, a professor at the University of Southern California who conducted the study.
The study also shed some light on what happens to the people in those "lost" households. It’s widely assumed that many who lose a home to foreclosure become renters. But since the recession began, there has been a five-fold increase in “overcrowding” of remaining households — defined as more than one person per room, according to the study.
That doubling-up is happening as families who lose their homes move in with friends or family. In other cases, younger people have delayed moving out on their own, instead staying with their parents until the economy improves. Others who fail to find work after graduating from college move back home.
Falling homeownership levels
The decline in households is weighing on both the home buying and rental markets. Since the number of home foreclosures began surging in 2007, the national homeownership rate has been steadily falling. But renters also have been forced to double up or move in with friends or family. That’s a major reason that the vacancy rate for U.S. apartments stood at 8 percent in the first quarter, the highest level since 1986, according to a report this week from Reis, a real estate research firm.
The future pace of household destruction or formation is uncertain. A lot depends on how quickly the job and housing markets recover. The outlook for both is mixed.
Though many economists expect the economy to add several hundred thousand new jobs a month as the recovery gains strength, it will likely take years to restore employment to its pre-recession levels. After the 2001 recession, it took four years of job growth to restore a 2 percent drop in employment. This time around employment levels have fallen by 6 percent.
Homeownership levels, meanwhile, continue to decline. New foreclosures filings are running about 300,000 a month, according to RealtyTrac. There are currently some 5 million homeowners that are 90 days or more past due on their mortgages, according to Fannie Mae chief economist Doug Duncan.
Though the pace of foreclosures has recently begun to taper off, there are indications they may pick up again as lenders redouble efforts to work out bad loans, and mortgage defaults continue to bring new foreclosures.
“Some of the foreclosure backlogs are working their way through the system at this point,” Duncan told CNBC.
Millions more homeowners who are current on their mortgages owe more than their home is worth. Though the government recently issued another round of guidelines to lenders urging them to reduce the principal owed on those loans, the process is mostly voluntary.
Rise in homelessness
So far, lenders have been slow to cut the size of a mortgage to make monthly payments more affordable. As a result, an increasing number of families are walking away from their homes in a process known in the industry as “strategic default.”
That can become contagious, said Duncan, as neighbors follow suit. “If they see someone else in their neighborhood that walks away, it increases the likelihood they will seriously consider not paying theirs,” he said.
It’s not a move to be taken lightly. The resulting damage to a borrower’s credit history can hurt job prospects with a new employer or create a barrier to renting.
In some cases, the loss of a house to foreclosure is leaving families homeless, though there is little national data available on how many are affected. A recent study by the Department of Housing and Urban Development found family homelessness on the rise since the recession began, with the biggest increases in suburban and rural areas.
Other groups, like the National Alliance to End Homelessness, report that a rising number of older adults are without a permanent place to live.
“The limited existing research tells a story of increasing homelessness among adults ages 50 and older,” the group said in a recent report.
The formation of new households isn’t expected to pick up again until at least 2012, according to the MBA study, even as the population continues to increase. Between 2005 and 2008, those 1.2 million households were lost even as the population grew by 3.4 million.
In the meantime, former homeowners like Brown are left scrambling for alternatives. He recently move into a rooming house where he continues to track down consulting work.
“I pay $600 for a third-floor room that gets hot in the summer,” he said. “It’s a blow. I don’t belong here. I’m an educated person. I’ve held executive positions. And here I am in a boarding house where Russian is a first language.”