Jobless claims jump as housing market gets weaker

WASHINGTON – Two cornerstones of the economy – jobs and housing – sank to new depths Thursday, with unemployment claims bolting higher and home prices recording one of their steepest drops on record.

The bleak reports underscored the self-reinforcing cycle hampering the economy: As home prices sink, foreclosures rise, banks feel pressure to shy away from lending and employers cut jobs.

The Labor Department said the number of newly laid-off people filing for unemployment benefits rose to 406,000 last week, a jump of a seasonally adjusted 34,000. The last time jobless claims were higher was after the Gulf Coast hurricanes in 2005.

The housing news wasn’t any better: As sales of previously owned homes fell in June and a glut of unsold and foreclosed homes on the market, the value of Americans’ biggest asset continued to sag.

The median price for a home sold in June was $215,100, a drop of more than 6% from a year earlier and the fifth-largest year-to-year price drop on record, the National Association of Realtors said. Sales of previously owned homes fell 2.6%, to an annualized rate of 4.86 million.

With companies laying off workers and new jobs increasingly hard to find, the ranks of new homebuyers could shrivel further, spelling even more trouble ahead for the housing market and the economy. Consumer spending, the very lifeblood of the economy, is further in jeopardy.

“If you don’t have a job or are concerned about keeping your job, you are not going to rush out to buy anything – let alone a home,” said Richard Yamarone, economist at Argus Research.

The National Association of Realtors said inventories of homes on the market rose by 0.2% to 4.49 million units, meaning it would take 11.1 months to exhaust the current backlog at the June sales pace, the second highest level in the past 24 years. The glut of unsold homes is being made worse by a rising wave of foreclosures.

Sales of existing homes dropped in all regions of the country in June except the West, which posted a 1% sales increase. Sales fell by 6.6% in the Northeast, 3.4% in the Midwest and 3.1% in the South.

Analysts said the slight sales rebound in the West reflected big price declines in many parts of California that are helping to make homes affordable once again.

“California is on the leading edge of a housing recovery and that is because prices are falling fast in many areas and that is restoring affordability,” said Mark Zandi, chief economist at Moody’s Economy.com. But he predicted any rebound nationally will be slow in coming, reflecting the continued surge in foreclosures as many subprime mortgages reset to higher rates.