Unemployment driving foreclosures now.

From a recent CNN Money report on the real estate market comes this report. As the economy tanks, unemployment is the major factor driving a much larger proportion of foreclosures now than in the earlier stages of the mortgage meltdown, when bad loans were primarily to blame.

In June, 45.5% of all delinquencies reported by Freddie Mac (FRE, Fortune 500) were due to unemployment or the loss of income, according to the company. That's a rise from a level of 36.3% in 2006.

"The two economic factors that most contribute to foreclosures are falling home prices and rising unemployment," said Richard DeKaser, chief economist for National City Corp (NCC, Fortune 500). "It's hard to pay your mortgage when you don't have a job."

And that's a situation that more and more people are finding themselves in. Nearly one million Americans have lost their jobs so far in 2008. The Bureau of Labor Statistics reported in early October that 159,000 private sector jobs were lost in September, and on Friday, economists expect the BLS to report that 200,000 jobs were lost in October.

"The rise in job losses will increase and extend the delinquency trend," said Doug Duncan, the chief economist for mortgage giant Fannie Mae (FNM, Fortune 500). Foreclosures spiked 71% in September alone according to RealtyTrac.

A double whammy

Of course the housing crisis is driving unemployment which in turn has exacerbated the housing crisis - particularly in bubble states like Florida, Nevada and Arizona.

The unemployment rate in Florida was just 3.3% in May 2006, when the subprime crisis began to emerge - far below the national average of 4.7% at the time. Today Florida's rate stands at 6.6%, well above the current national average of 6.1%. And, Michigan leads the nation with an 8.7% unemployment rate at the end of September.

The employment issues in Michigan are driven by the automotive industry, which is in such sad shape that there is open talk of one or more of the local auto companies going out of business. Hopes now hang on a federal bailout and a merger between GM and Chrysler.

In our area the UAW auto members who fueled much of the housing boom are now experiencing life without much overtime and layoffs that likely impact 1 in 10 families, when supplier layoffs are added in. Not only aren't they buying any more, but many are in the process of losing the homes that they bought in better times to foreclosure. And all of those automotive execs who used to provide a buyer pool for upscale, move-up houses - forgetaboutit!

So 2009 is shaping up to be the year of the layoff foreclosure. Whatever causes them, foreclosures will continue to put downward pricing and value pressure on the market. It doesn't really matter if the bank is willing to rework the loan or if the Feds programs provide for new lower rates; if the homeowner doesn't have a job, anything above a zero payment is likely out of the question. WE NEED JOBS IN MICHIGAN! Then we can worry about real estate.