The biggest obstacle to the U.S. economic recovery is the high unemployment rate experienced in many regions across the country.

It’s a vicious cycle that ultimately affects all industries, businesses, and consumers. If consumers don’t have jobs, they cannot buy or rent homes—or make timely mortgage payments. Without jobs, people won’t step into stores or make purchases.

Without sales, shops and department stores earn no income and can’t provide jobs. In addition, it means that stores can’t buy products from the manufacturers. In turn, manufacturers are going bankrupt, downsizing, or closing doors.

This cycle directly affects the real estate market—a key driver of the U.S. economy—leaving in its wake rental, commercial, or residential properties vacant throughout the United States.

Corporate Downsizing
Laying off staff creates more problems and perpetuates economic disaster. “In a nutshell, making employees redundant is a double edged sword, yes it reduces corporate costs and increases profitability, but it also kills the golden goose that was laying the golden eggs,” according to a recent unemployment article titled “Structural Unemployment—Human Sink Holes.”

The private sector hasn’t shown marked improvement in creating jobs, as the unemployment rate gives no indication of declining and companies are still laying off people.

“Employers took 1,609 mass layoff actions in July that resulted in the separation of 143,703 workers. … The manufacturing sector accounted for 25 percent of all mass layoff events and 31 percent of initial claims filed in July,” according to data from the Bureau of Labor Statistics (BLS).

In July, the unemployment rate still hovered around 9.5 percent, according to the BLS. As the BLS numbers are based on those who continue to draw unemployment compensation, it is actually not known how many people are really out of a job or had to accept a low-paying or part-time job to keep their head above water.

“Corporations have to downsize when they have no customers. As they shed workers, they shed customers, as they shed customers they must shed workers—it is the quintessential vicious circle leading to structured unemployment of the work force,” according to the unemployment article.

Commercial Real Estate Stagnating
The commercial real estate sector is experiencing a huge buyers’ market.

“Commercial real estate sectors, hurt by weak job growth, are offering incentives in many areas that are conducive to business expansion,” according to the National Association of Realtors (NAR).

Although a slight improvement was noted by the SIOR Commercial Real Estate Index, published by the Society of Industrial and Office Realtors (SIOR) in the commercial real estate sector, it was only achieved by landlords and sellers lowering prices significantly, giving rent discounts and other incentives.

“Looking at the overall market, vacancy rates will shift modestly in the coming year,” predicts the NAR. However, according to expert opinion, unless the unemployment situation improves, the prediction may not materialize.

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The countrywide vacancy rate hovers around 16.7 percent and is predicted to reach 17 percent by mid-2011. Not all U.S. states reported a dismal picture for the commercial real estate sector, however. Large cities, such as New York City, Honolulu, certain portions of Long Island, N.Y., Los Angeles, San Francisco, and Kansas City reported lower vacancy rates, ranging between 8 and 11 percent.

We are in the midst of a renters market. Office rental rates will decrease by close to 3 percent by the end of this year and are predicted to decrease a little more than 2 percent in 2011.

Despite incentives and low prices in the commercial sales and rental real estate market, lack of available credit puts another dent into the market.

Rental Market on the Upbeat
“The apartment rental market—multifamily housing—is benefiting from modestly higher demand,” according to a NAR statement.

With people losing their homes because of loan defaults, the rental market has picked up, with vacancy rates declining to 5.1 percent during the first half of 2010.

The Lender Processing Services website reported that foreclosures in June slowed down, but overall it still hovered around 9.55 percent. Delinquent and foreclosure properties are still increasing and are consistently above January 2008 levels with the majority of defaults in Florida, Nevada, Mississippi, Georgia, and Arizona.

Home Sales Sagging
“Existing-home sales were sharply lower in July following expiration of the home buyer tax credit but home prices continued to gain,” according to the NAR.

In July, home sales declined by close to 30 percent, lower even than in 1995 when the U.S. economic growth slowed to a little over 2 percent GDP, from the 3.5 percent in 1994.

Home sales began to decline in May when the homebuyer tax credit expired. Mortgage finance giant Freddie Mac suggests that home sales between January and July were close to 8 percent higher when compared with the same period in 2008.

But NAR is upbeat, despite a 2.5 increase in the homes-for-sale inventory. Vicki Cox Golder, president at NAR, said in a recent release, “Mortgage interest rates are at record lows, home prices have firmed and there is good selection of property in most areas, so buyers with good jobs and favorable credit ratings find themselves in a fortunate position.”

Despite downward sliding sales, home values have edged up, although not quite to the 2009 levels, according to the Freddie Mac Conventional Mortgage Home Price Index.

Home values increased by 3.1 percent between April and the end of June, although home appraisal values decreased by one-half of a percent.

Amy Crews Cutts, deputy chief economist at Freddie Mac, said in a statement, “We saw increases in home values in the second quarter that were very strong across all regions—there is no doubt that some of this was due in part to the now-expired homebuyer tax credits which boosted sales activity as well as to the usual seasonal bump we see each Spring.”