Layoffs prolong luxury housing pain

In December 2008, my son was laid off from his job at a hedge fund, which had shut down operations and ceased functioning as an ongoing business. Three months later, his severance pay ended and he was still unemployed, with no job offers in sight.

My son is a homeowner, having bought a townhouse four years ago in Weehawken, N.J., just the other side of the Hudson River from Manhattan. When he walks out his front door, he can see the gleaming towers of the Big Apple in the distance. The good news for my son is that when he acquired his property, he bought at a very reasonable price with an adjustable-rate mortgage, which he refinanced a few years later with a 30-year-fixed-rate mortgage. The mortgage payments are not onerous.

This somewhat-salubrious scenario doesn't hold for hundreds of thousands of financial service workers around the country, who, like my son, have lost their jobs. According to the Center for American Progress, a think tank located in Washington, D.C., just under 500,000 financial services jobs have evaporated since December 2007, or 7.6 percent of the 6.5 millions of jobs lost in the country over that period of time.

In Manhattan alone, the most recent estimate holds that almost 20,000 jobs were lost; many thought the number would be higher.

Many of these jobs were relatively high-paying on a national average so many of these individuals who stowed away assets and investments and are now unemployed have been able to withstand many months without a corporate paycheck. But, their time is running out and the financial services industry is still not hiring back enough workers. This is the shifting sand underneath the housing data, particularly at the high end of the market.

Here's what is happening: Many of the financial jobs lost due to the collapse of the financial services sector -- including the fall of Lehman Brothers, Bear Stearns and AIG -- were middle-management positions, which in the Northeast, for example, were jobs that paid anywhere from $100,000 to $350,000 a year.

These were considered secure jobs and were probably held by up-and-coming young professionals in an age group from the late-20s to early-40s, most of which had growing families. My guess is a high percentage of these professionals improved their housing situation sometime in the period from 2001-07.

Perhaps they had first been in a starter home, then with salaries and bonuses climbing substantially, more children on the way and cheap credit available, these professionals jumped into their next house situation at the highest end of the cost spectrum that seemed reasonable.

In effect, they bought the biggest, most expensive house they could NOT really afford. After all, they were the future kings and queens of the universe, and they had only known a world where salaries and bonuses moved in one direction: up. At some point, they figured their income would catch up, or leapfrog ahead, to a point where mortgage payments were no longer a burden on their personal balance sheet.

Now they are out of jobs. Due to their wonderful paychecks over the preceding decade, many had substantial assets and have been able to maintain their ability to pay their mortgages. After a year out of work, however, their individual balance sheets are being severely crimped, and those mortgage payments are becoming unaffordable.

The situation probably won't be getting better for them in the near future. ...CONTINUED

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