Just as most of us believe we’ve seen the worst of the housing market’s collapse, two unlikely states are only now getting hit with a wave of foreclosures: New York and New Jersey.
The region was largely spared when home prices disastrously tumbled in 2007. New York and New Jersey, with some of the nation’s priciest homes and highest property tax rates, saw nowhere near as many foreclosures during the Great Recession as most of the rest of the country. But that has changed.
Next to Florida, New York and New Jersey have the highest share of homes undergoing foreclosure relative to all homes with mortgages, according to a report by CoreLogic. In February, Florida had the highest share at 9.9%, followed by New Jersey at 7.2%, and New York at 5%.
This might come as a surprise, given that household finances in the two states have generally fared better than the rest of the country in recent years. But while there are fewer mortgages in New York and New Jersey entering foreclosure every month than nationally, more of them have been getting stuck in the process. That’s because the two states use a judicial foreclosure process, which generally requires that foreclosures go through a state court.
Between 2010 and 2012, the share of mortgages entering foreclosure each month was 0.24% in upstate New York, 0.36% in downstate New York and 0.40% in northern New Jersey — all lower than the national average of 0.42%, according to a recent report by the Federal Reserve of New York. This is a good thing, but since foreclosures take longer to process, it also slows down the region’s housing recovery. On average, it takes 503 days to complete a foreclosure in New York and 481 days in New Jersey, markedly higher than 318 days nationwide, according to the Fed.
This says less about the strength of the recovery than the unintended consequences of New York and New Jersey’s foreclosure laws. While the regulations certainly protect homeowners, they also hamper the housing market’s healing process.
From the NY Fed:
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.
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.