Experts say glut of distressed homes gives no real cause for concern
By Orlando Lee Rodriguez
After years of being insulated from the distressed property crisis facing the single-family asset class, the New York City region now has one of the country’s highest foreclosure rates.
“The region is faring far worse than the nation in one important respect — a growing backlog of foreclosures, resulting in a rate that is now well above the national average,” said economists Jaison R. Abel and Richard Deitz of the Federal Reserve Bank of New York on Liberty Street Economics.
“While the foreclosure rate has been edging down in the nation recently, the opposite is true in New York and northern New Jersey. The rate now hovers around eight percent, double the national average.”
Legal hurdles recently implemented in states such as New Jersey to protect homeowners, can now make the foreclosure process take longer than a year.
Critics say the long process is partly to blame for the now extensive backlog of properties set to flood the market.
“Ironically, efforts to slow the slide of the housing market in previous years are now hampering a smooth recovery by holding back inventory of homes that almost certainly must sell in the future but are not yet listed for sale,” said Daren Blomquist, vice president at RealtyTrac, in a statement.
However, experts like Blomquist also say that a flood of distressed properties hitting the market at one time should not have too much of a negative effect on prices in the New York metro area.
“Even if all these homes flooded the market simultaneously, they would likely not cause the once-feared double dip in prices, given supply constraints from non-distressed sellers and stronger demand,” he said.
Part of the reason, economists say, is that a price bottom has already been reached in the New York metro area. Combined with a strong job market, prices should not fall, but won’t rise as fast as sellers may want them to.
“Given the strong connection between housing and local economic performance, this firming is good news,” said Abel and Deitz in their brief Foreclosures loom large in the region.
“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.”
Out of the 50 states, New Jersey and New York rank number two and three respectively in having the highest rate of foreclosure inventory. In April, New York’s rate stood at 5.1 percent, according to data compiled by analysts at CoreLogic. New Jersey’s inventory rate was 7.4 percent while Florida led the nation with a 9.5 percent foreclosure inventory rate.
In New York City, three of the top five neighborhoods for foreclosures are in Brooklyn. Zip code 11207, which covers parts of South Bushwick and East New York has the highest rate in the city.
Hunts Point in the Bronx ranks second highest while the Cypress Hills and Spring Creek sections of East New York rank third highest in foreclosures, according to the Federal Reserve Bank of New York.
But given that demand in Brooklyn is sky-high, particularly in the Bushwick market, where inventory in rapidly gentrifying neighborhoods has been tight, additional properties are not expected to put a damper on prices, just give more inventory options for buyers.
“The eventual release of these properties will be welcome in the market,” said Emmett Laffey, CEO of Laffey Fine Homes, in a release. “Buyer appetite for foreclosed properties is at an all-time high. Investors will continue to swarm at below market deals.”