FRBNY: Foreclosures Loom Large in the Region

Federal Reserve Bank of New York

Foreclosures Loom Large in the Region

Jaison R. Abel and Richard Deitz

Households in the New York-northern New Jersey region were spared the worst of the housing bust and have generally experienced less financial stress than average over the past several years. However, as the housing market has begun to recover both regionally and nationally, the region is faring far worse than the nation in one important respect—a growing backlog of foreclosures is resulting in a foreclosure rate that is now well above the national average. In this blog post, we describe this outsized increase in the region’s foreclosure rate and explain why it has occurred. We then discuss why the large build-up in foreclosures could cause a headwind for home-price gains in the region.

While the foreclosure rate has been edging down in the nation recently, the opposite is true in New York and northern New Jersey. The chart below shows the foreclosure rate as measured by the share of all active mortgages in foreclosure in a given month. After rising sharply during the housing bust, the U.S. foreclosure rate plateaued at about 4 percent in 2011, and has since fallen. Unlike the national rate, the foreclosure rate in our region has steadily climbed over the past several years. The rate in northern New Jersey and downstate New York now hovers at around 8 percent, double the national average. Even in upstate New York, where housing conditions have remained relatively stable, the foreclosure rate has recently edged above the national rate. Indeed, according to a recent report, New Jersey and New York now have the second- and third-highest foreclosure rates in the United States, behind only Florida.

Chart1_growing-backlog

The relatively large stock of foreclosures in our region may come as a surprise given that the housing bust was far less severe here, and household finances have been generally under less stress than nationally in recent years. As the chart below shows, the share of mortgages entering foreclosure each month in the region during the 2010 to 2012 period was at or below the national average, with the rate especially low in upstate New York. Yet while fewer mortgages are entering foreclosure on a monthly basis than nationally, more of them have been getting stuck there. Indeed, the chart shows that it takes far longer for homes to complete the foreclosure process in New York and New Jersey compared with the national average.

Chart2_smaller-share

The reason foreclosures take so long to complete in New York and New Jersey is because both states use a judicial foreclosure process, which generally requires that a foreclosure be processed through a state court, as opposed to a non-judicial process where a foreclosure can be handled without court intervention. While the judicial process affords protection to homeowners, it also extends the amount of time that homes typically stay in foreclosure. States with a non-judicial foreclosure process have generally been able to work through the backlog of foreclosures faster than those with a judicial process. This difference is the main reason that our region now has a larger share of properties currently in foreclosure than is typical in other parts of the country.

There are a couple of reasons why the large and growing backlog of foreclosures might exert a drag on the region’s home prices going forward. When a home enters foreclosure, the incentive for homeowners to maintain or improve the home is significantly reduced. This is because homeowners won’t be selling the home and so will not be able to recoup their costs once ownership is transferred to the foreclosing bank. As a result, homes in foreclosure tend to deteriorate more rapidly than otherwise similar homes, diminishing their values. Also, once the foreclosure process has been completed, these bank-owned properties are typically put up for sale, and are often sold as distressed properties at reduced prices, in part because the foreclosing bank would prefer not to hold them for long. These sales can reduce their neighbors’ home values as well. Indeed, recent research suggests that reduced investment by homeowners in foreclosure creates a negative externality resulting in downward price pressure on nearby properties. Time is also a factor; the longer a home is in foreclosure in judicial states like New York and New Jersey, the greater the potential for homes to deteriorate and prices to decline. Since there are now a fairly large number of homes in foreclosure in the New York-northern New Jersey region, we may see a dampening effect on regional home prices as these distressed properties work their way through to the market. In fact, to the extent that price declines are anticipated, some of this decline may already be priced into the market.

While the future path of home prices is hard to predict, recent trends indicate that home prices in the New York-northern New Jersey region may have reached a bottom. Given the strong connection between housing and local economic performance, this firming is good news. Still, the growing backlog of foreclosures in our region may be exerting a drag on home prices and may well continue to do so in the future as more distressed homes come onto the market. And the longer these homes stay in foreclosure, the worse the effect on prices as they deteriorate and create negative externalities for their neighbors.

Disclaimer
The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

SOURCE: http://www.newyorkfed.org

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4closureFraud.org

Comments
One Response to “FRBNY: Foreclosures Loom Large in the Region”
  1. charley rice says:

    IF THE BANKS are FORBIDDEN under their CHARTERS and TITLE 12 to loan YOU MONEY.

    SO why ARE they STEALING our HOMES?

    Wait a minute, THEY HAVE NO STANDING, NO JURISDICTION, NO VENUE!

    GOOGLE IT and ASK yourself that QUESTION.

    What is wrong with this picture, and why are they steam rolling over the PEOPLES HOMES that they DID NOT lend a SINGLE PENNY to?

    The PEOPLE that CREATED the money based upon the 1933 Signature Act and THEY always had the POWER.

    WHO IS LETTING the TARP BANKS do this to the PEOPLE and get away with this ACT is AN ENEMY OF WAR and CREATING WAR UPON THE PEOPLE.

    “THIS IS TREASON!”

    THE COURTS are Obstructing Justice.

    STOP doing HOSTILE takeover of the PEOPLE’S LAND and RESCIND the peoples homes.

    You CAN’T steal a HOME and KEEP it just to blame it on ERROR.

    YOU HAD NO STANDING, AND YOU BROKE THE LAWS by ROBOSIGNING on SUBPRIME BANKS that HAD been out of business for over (5) five YEARS had CREATED CANCELLED DEFECTIVE INSTRUMENT ASSETS which is UNENFORCEABLE.

    TO NOT GIVE BACK the PEOPLES HOME is BREAKING the TEN COMMANDMENT LAW, the HIGHEST LAW upon the LAND.

    ” THOU SHALL NOT STEAL”

    THE PEOPLE WILL WAKE UP and NOT be the Sheepie no more.

    GOD DOESN’T LIKE EVIL and SOON YOU WILL FEEL his MIGHTY HAND upon YOU for YOU CAN’T NO LONGER HIDE and the days are numbered.

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