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New York's Impending Real Estate Doom
“Our most recent data for October shows a rather significant decline of 11.3% in home prices across the country compared to last October,” said Jed Smith, a managing director of quantitative research at the National Association of Realtors. “A major reason prices are dropping is because of foreclosures, which pull overall home prices downward. And the foreclosure situation is a result of all the job losses.”
Despite projected job losses in New York, foreclosures have been relatively minor and home prices have yet to decline dramatically. Prices dropped 3.6% in the third quarter compared to the same period last year—half as much as the decline in the U.S. market overall, according to NAR. The Manhattan market has been exceptional, with the average price of an apartment rising 8% in the last year to near $1.5 million, according to realtor Prudential Douglas Elliman.
The New York housing bill took effect on Sept. 1. It requires lenders to wait 90 days from the date they send a notice to a homeowner with any subprime, high-cost or non-traditional mortgage entered into between Jan. 1, 2003 and Sept. 1, 2008, before they can initiate a foreclosure filing.
Housing advocates fret a sudden increase in foreclosure cases next month will put a strain on services.
“This will swamp the court system and the existing resources we have in place for borrowers,” said April Newbauer, the attorney-in-charge of the civil practice in Queens for the Legal Aid Society. “Already, both the existing legal services like Legal Aid and the nonprofit housing counselors are overwhelmed, so we are trying to coordinate a mass effort of the private bar to assist these borrowers,” she said.
Beyond the merits of a law that probably adds only another month or so to a household in severe distress, there is a wider question for people with long experience in the New York mortgage market: will re-working a loan actually help the borrower in the long run?
"These moratoriums don't get at the root of the issue, its just politicians hoping to delay what in most cases will be inevitable," said Richard Moody, the chief economist at Austin, Texas-based Mission Residential.
According to a 2007 report from Fitch Ratings, 35% to 40% of borrowers default again within 12 to 24 months after having their loans modified. “Over the years, I have seen so many mortgages that go into foreclosure that were already modified,” Jessica Davis, president of NYForeclosures.com, said. “So a year or year-and-a-half after a homeowner modified his or her loan, they still can't meet their obligations and are back in court.”
Still until a better solution comes along, advocates like Newbauer from the Legal Aid Society will support any plans that help slow the rate of foreclosures. “We are so glad that the politicians recognized the terrible phenomenon of a declining economy and the shark practices in the lending industry,” she said. “Where there are holes in the new law, we are trying to work on fixing them.”
Julie Satow is a business reporter and editor, whose writing has appeared in Crain's New York Business, The New York Sun, The Newark Star Ledger, Institutional Investor, and Reuters. She is a regular commentator on the FOX Business Channel.
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Lloyd Grove is editor at large for The Daily Beast. He is also a frequent contributor to New York magazine and was a contributing editor for Condé Nast Portfolio. He wrote a gossip column for the New York Daily News from 2003 to 2006. Prior to that, he wrote the Reliable Source column for the Washington Post, where he spent 23 years covering politics, the media, and other subjects.
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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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