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New York's Impending Real Estate Doom
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A hastily drafted moratorium on foreclosures has kept many New Yorkers in their homes. It's about to change.
New York City has been the big holdout in the U.S. housing meltdown. Wealthy foreigners flush with weak dollars and a finite supply of pricey Manhattan condominiums have kept the market moving.
But the New York hiatus from a harsh real estate market is likely coming to an end – and it’s not just the estimated loss of 48,000 jobs in the city over the next year that will cool home prices. Foreclosures are expected to start heading higher—possibly sharply higher—as soon as next month.
"It is going to be an absolute disaster next month," said Bill Staniford of PropertyShark.com.
The foreclosure rate is important because a rise is traditionally followed by a drop in home values. As a rule, every one foreclosure in a neighborhood lowers home values in that area by about 1%.
The foreclosure rate in New York has been artificially depressed, thanks to a state law passed in August. The trouble is, that relief has been temporary. As the moratorium lifts, the fear is that foreclosures will spike and the housing market will face even tougher headwinds. As more states consider delaying foreclosures to keep people in their homes, what happens next in New York could well be instructional.
“It is going to be an absolute disaster next month,” said Bill Staniford, the CEO of PropertyShark.com, a real estate research site. “We haven't seen anything yet.”
Back in August, state legislators in Albany set a 90-day freeze on foreclosures that’s created a backlog of foreclosure filings. The 90-days are up next month. Banks will be bringing foreclosure filings “by the wheelbarrow,” said one court officer in Queens, where the number of filings dropped to just 60 per week from a rate of 150 per week before the law took effect. Tracy Catapano Fox, a clerk for administrative judge Jeremy Weinstein of the Queens Supreme Court, said the court is reassigning some staff to handle the expected additional work.
New York is one of a handful of states where politicians have acted to delay the foreclosure process for the banks. Others are also considering it, including most recently, California Gov. Arnold Schwarzenegger and Florida Gov. Charlie Crist, who are proposing 90-day moratoriums for their states. Connecticut Gov. M. Jodi Rell last week included a six-month foreclosure moratorium as part of a housing bill she is proposing.
One of the first to enact a foreclosure delay was Massachusetts. It set a three-month freeze in May, creating a backlog in foreclosures that built up to August. In the end, foreclosure filings ballooned 456% between August and September, according to RealtyTrac, a site that tracks foreclosures nationally.
Home prices dropped at that time as well in Massachusetts. In September, for example, the median price for a home dropped 15.6%, to below $300,000 for the first time in five years, according to the Warren Group, a Boston-based real estate data firm. It was the steepest one-year percentage drop since the company began collecting data in 1987.
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It is like an entire nation enrolled in a "No Money Down" real estate course about twenty years ago. Rich and poor alike purchased land and just kept leveraging it knowing it would increase in value. As I write this, an unwanted pop up popped up informing me I could make a killing in real estate. I remember when the bubble burst in 1980 and again at the turn of the new millenia. But those periods were only levelers. This mess is showing real and heavy decreases in value. I have never seen anything like this on the ground level. What do you do in Manhattan after buying in at half a million twenty years ago, leveraging your property to three million and discovering it is only worth two million now? A lot of people categorized as rich are not so rich anymore.
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