The Housing Recovery Myth In New York And New Jersey Ends With A Bang As Foreclosures Surge

Tyler Durden's picture




 

It was about a year ago when we noted a core component of the US housing non-recovery: the time to sell foreclosed homes had just hit a record of 400 days across the nation. We showed the following chart from RealtyTrac confirming just this:

 

We also proceeded to highlight some thoughts from a real housing expert, not a made for financial comedy TV "housing guru", in this case Marc Hanson, who pointed out the Bottom line on the Zombie housing market:

Of the 54 million homeowners with mortgages -- the primary repeat buyer cohort and a primary builder demand cohort -- over 22 million are dead to the housing market. Of the 70 million homeowners -- mortgage'd and free and clear -- 33 million are Zombies. Thus, we can't expect housing to act like it has in the past. With so many Zombies it will be impossible for repeat and new home sales to perform as expected. The past 18 month bounce -- especially on prices -- has been on cheap and easy money from investors looking for a dividend stock and/or Treasury replacement trade. some foreigners following their lead, and finally the 'dumb money' (retail) chasing into this summer.

 

But we are running out of greater fools very quickly, especially with first-timers sidelined and new-era "investors" who are quickly pricing themselves out of markets nationwide.

(More can be read in the original article).

Fast forward to today when even the last traces of the lie that sustained the housing recovery myth are being swept away, and we get the following article from Bloomberg titled "Foreclosures Surging in New York-New Jersey Market." The punchline is quite clear but below, for those who are new to this story, are the key supporting points:

The epicenter of the U.S. foreclosure crisis is shifting to New Jersey and New York, threatening a housing rebound in one of the country’s most densely populated areas.

 

New Jersey has surpassed Florida in having the highest share of residential mortgages that are seriously delinquent or in foreclosure, with New York third, a Mortgage Bankers Association report showed last week. By contrast, hard-hit areas such as Arizona and California have some of the lowest levels of soured loans after allowing banks to quickly foreclose after the 2007 property crash.

 

The number of New York and New Jersey homeowners losing their houses reached a three-year high in 2013. Banks in these states have been slowly working through a backlog of delinquent loans that enabled borrowers to skip mortgage payments for years. Now these properties are poised to empty onto a market where affluent Manhattan suburbs neighbor blighted towns that are struggling most with surging defaults.

The good news (according to some): thousands of people could live mortgage free for years until the bank delays obtaining the keys to the foreclosed property. This was money which instead of going to the mortgage owner, would instead go to buy Made in China trinkets and gizmos and otherwise keep the US retail party humming. Specifically, as we observed long ago in March of 2011, the benefit to the US economy from "deadbeat squatters" was about $50 billion per year. Which brings us to the bad news: the party - retail and otherwise - is ending, as courts and banks finally catch up with inventory levels on both sides of the foreclosure pipeline, and those who lived for years without spending a dollar for the roof above their head are suddenly forced to move out and allocated the major portion of their disposable income toward rent.

Lenders in New Jersey are pushing cases through more quickly and it now takes about two months to process final judgments against delinquent homeowners, compared with a backup of nine months a few years ago, said Kevin Wolfe, assistant director of the Civil Practice Division in the Administrative Office of the Courts.

 

The Office of Foreclosure, which reviews case files before they can move to the final step of sheriff sale, has added four permanent staff members, six law clerks and 10 case analysts since 2012. It previously had seven employees.

 

“We are staffed up to move these cases faster,” Wolfe said. “But the other reason cases are moving more quickly is that lenders have improved their foreclosure practices and worked out logistics with their law firms and, as a result, they’re geared up to handle foreclosures more efficiently.”

Which means that as the inventory bottleneck suddenly unclogs and thousands of new properties hit the market with an urgency to sell before anyone else does, things in New York and especially New Jersey are about to go from bad to worse.

“It is really a delayed reaction in New Jersey and New York,” said Michael Fratantoni, chief economist for the Mortgage Bankers Association in Washington. “Loans that were made pre-crisis have been in this state of suspended animation for a number of years. And now, we are beginning to see the pace of resolution pick up.”

 

In January, the number of New York foreclosure auctions reached 527, the highest monthly level since October 2010, according to data firm RealtyTrac. Foreclosure filings in New York City increased 30 percent to 15,993 in 2013, a three-year high, according to RealtyTrac.

 

Almost 10,000 cases in New Jersey headed to a sheriff sale in 2013, 47 percent more than the year before and the highest level since 2009, according to the New Jersey Administrative Office of the courts. Across the country, repossessions fell 31 percent in 2013 to the lowest since 2007, according to RealtyTrac.

The implication is that prices - already suffering in these two core states - are about to go far, far lower:

The real estate markets in New York and New Jersey are trailing the rest of the country as a result. Prices in New Jersey, the most densely populated state, climbed 2.9 percent in the fourth quarter from a year earlier, compared with a 7.7 percent jump for the U.S, the Federal Housing Finance Agency said yesterday. New York values rose 3.7 percent.

 

“Price increases that are occurring in the rest of the country are not likely to happen in the New York-New Jersey area, with the potential inventory that can come at any time,” said Lawrence Yun, chief economist of the National Association of Realtors.

 

“When one sees a price increase in Phoenix or many other parts of the country, one can assume it’s a genuine increase from falling inventory,” he said. “If it happens in Edison, New Jersey, or Long Island, New York, one has to ask, ’Is this for real or just temporary?”

Actually, Larry, when one sees price increase in Phoenix i) one will be wrong as prices in Phoenix just posted their first monthly decline since 2011, and ii) nobody can assume anything is genuine in a housing market in which mortgage origination just dropped to a 19 year low, meaning only those with abundant cash and no regard for cost can continue buying.

Everyone else is about to get a very harsh lesson in what it means to have been lied to by the propaganda machine for years, and suddenly have nothing to show for it but some vastly overpriced real estate.

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Wed, 02/26/2014 - 15:31 | 4481310 RafterManFMJ
RafterManFMJ's picture

Any article that has New Jersey in it automatically pegs the guaranteed fraud meter at 11.

Wed, 02/26/2014 - 15:51 | 4481369 BKbroiler
BKbroiler's picture

Manhattan home prices are up a third since last year.  Below 14th street its almost 50%.  NYC is booming.  See for yourself, big infographic at the bottom of the page at streeteasy.com. 

Inventory in all of nyc is so low it's ridiculous.  Brooklyn is exploding. I found a fixer upper for 100K cash in sunset park a year ago and now there's nothing there below 280K, and only 3 below 400K.  Total.  In Greenpoint there's nothing below 600k.  Madness

Wed, 02/26/2014 - 15:57 | 4481450 cynicalskeptic
cynicalskeptic's picture

A LOT of foreign capital is looking for 'safe havens' and finding it in US (esp NYC) real estate.......

 this does not apply to just the top end - you've got foreign money looking to invest in NYC rental properties too - lots of buying in gentrified Brooklyn

Wed, 02/26/2014 - 16:14 | 4481482 TruthInSunshine
TruthInSunshine's picture

More foreign money will get blowtorched in the current bubble (and there is a massive price bubble, regardless of whatever artificially manipulated inventory levels are) than during the last one (2000 to 2007), which was mainly domestic fiat getting torched (except in truly international cities such as Miami, New York, Boston, San Francisco, etc., all on or near the coasts).

Retirees with cash are one of the few classes of people that are genuine buy & hold groups right now, and they're overpaying dramatically due to artificially suppressed inventories of housing stock (shadow inventory is massive and still rotting on TBTFs and GSEs books).

Take away the 3.5% FHA down payment program (look it up - 87% of homebuyers are tapping this right now) and see what happens to the housing "boom."  If buyers had to come up with even 10% down, housing sales would be cut by 1/2 (there was a time when it was NORMAL to have 20% down mortgages, bitchez).

The debt serfs living paycheck to paycheck are about to be sold into abject slavery.

Wed, 02/26/2014 - 18:40 | 4482316 ChanceIs
ChanceIs's picture

Hey!!!!  Remember the late '80s when the world thought that the Japanese had (re)invented capitalism!?!?!  They owned half of Manhattan and 3/4 of Hawaii.  (I can't recall whether they paid cash or got (junk) financing from Mike Milken.)  They don't own Manhattan anymore.  Somehow I think the new owners of NYC are going to be in place for a while.  But then there is the Bolshevek de Blassio factor.  I think in the end that Comrade de Blasio will take orders from the 100% cash owners and they will play as if they are put out because their streets aren't shoveled as the masses will be satisfied.

Wed, 02/26/2014 - 18:47 | 4482350 BKbroiler
BKbroiler's picture

Somehow I think the new owners of NYC are going to be in place for a while

Meet the new boss, same as the old boss.  Here's a hint: It's not you but it rhymes with it.

Wed, 02/26/2014 - 22:39 | 4483175 ChanceIs
ChanceIs's picture

Hmmmmmmm........

>>>Meet the new boss, same as the old boss.<<<

Hillary doesn't rhyme with "you."

Jeb doesn't rhyme with "you."

Egon Spengler (RIP) doesn't rhyme with "you."  Nor does Sta Puft

Just what are you on about????

Oh.  Roger Daltrey doesn't rhyme with "you."  But (The) Who rhymes with "you."

Wed, 02/26/2014 - 16:01 | 4481461 ParkAveFlasher
ParkAveFlasher's picture

Fixer upper for $100k in cash, in Sunset PArk?  Are you SATAN?  $600k in Greenpoint does NOT buy you a lot, although MAYBE a 1 bedroom condo...

Wed, 02/26/2014 - 16:22 | 4481527 BKbroiler
BKbroiler's picture

Are you SATAN?  

A lot of ZH'rs think so, but no, I just suffered through the rigourous co-op approval process to get it, which is similar to an enema of your financial and personal life.  Old co-ops still occasionally yield a gem.

There are still some neighborhoods less than an hour from midtown where you can find 1br's in the 100-150K range like Briarwood.  Only 3 stops before Jamaica ave but much less gunfire.

Wed, 02/26/2014 - 17:41 | 4482068 ParkAveFlasher
ParkAveFlasher's picture

Ah I see now, BKB.  My next question would be, how do you fix up a co-op?  Seriously ... I feel like it defeats its own purpose.  And when I said "a lot", I meant an actual lot, with boundaries and so forth.  Which means I am reinforcing your comment ... one wonders how long this thing can go on in the "inner outers".

Wed, 02/26/2014 - 18:41 | 4482317 BKbroiler
BKbroiler's picture

I just sanded and polyurethane'd the original floors, scraped everything else down to the cement.  The original floors and moldings are all keepers.  These old buildings are a hundred years old and rock solid, my walls are 2 feet thick.

Greenpoint has gone crazy, I think it was that "gilrs" show that did it.  My parents bought a place in Greenpoint for 450K in '06 that is now worth around 750K.  These are apartments that were selling for 100-200K a decade before.  The old polish folks that bought in the 60s and 70's for around 40K cashed out pretty well and moved to Forest Hills.  Good for them.

Wed, 02/26/2014 - 16:04 | 4481486 johnQpublic
johnQpublic's picture

in process of selling my home in northern DE

bought it out of foreclosure dec 007, 20k under market value

put in 75k+

to sell, i had to sell 20k under market value, losing about a 100k

inspection was today

went well

get me the fuck outa here

house at the end of the street is vacant 9-10 months now

it last sold for 455k

it has been in forecosure process since we bought this house

it appeared to me that before she left she took everything, from the cabines to the toilets, and smashed them up and filled a 30 yd dumpster

Wed, 02/26/2014 - 16:13 | 4481533 DavrosoftheDaleks
DavrosoftheDaleks's picture

DE sure misses the ol' MBNA.

Wed, 02/26/2014 - 15:31 | 4481313 ArkansasAngie
ArkansasAngie's picture

Economic value.

Liquidity doesn't solve insolvency.

I am tired of paying the price for other people's fraud and stupidity

Wed, 02/26/2014 - 15:39 | 4481344 DoChenRollingBearing
DoChenRollingBearing's picture

Well, I too am tired of paying for other people's fraud and stupidity.  But, that is a trend that will continue, bet on it.

Real estate is risky and non-liquid, and a big yes to your comment re liquidity & insolvency.

Wed, 02/26/2014 - 16:13 | 4481415 livid levity
livid levity's picture

ceramics ftw...

Wed, 02/26/2014 - 15:38 | 4481338 nantucket
nantucket's picture

tell me about it, my parents bought a 15 year old house in barnegat NJ back in 2005 for $229k, improved it quite a bit (interior, landscaping, etc), can't sell it for $179k.  It's in a very nice neighborhood just 5 miles from the shore.  It was on market for 6 months without a single offer at $179.  They got in a renter last October.  The renter paid the first three months than stopped paying.  The renter basically said eff you, try to evict me, it'll take months.

 

that's just one anecdote.  but it's their reality.

Wed, 02/26/2014 - 15:41 | 4481355 failure to perform
failure to perform's picture

my heart goes out to your folks.

Wed, 02/26/2014 - 16:07 | 4481504 game theory
game theory's picture

NJ...it is the east coast epicenter of public employee fraud...with inflated pensions and overtime pay breaking budgets everywhere. To go live there now is to be signing up to pay ever-increasing taxes to pay those public employees. I hope your parents can evict the freeloader and sell. 

Wed, 02/26/2014 - 16:20 | 4481577 ArkansasAngie
ArkansasAngie's picture

Take the exterior doors off.  They are in obvious need of repairs.  Let'em sue you.

Wed, 02/26/2014 - 16:53 | 4481773 Frostfan1
Frostfan1's picture

A lot of people in Jersey don't rent out their places because they know all the laws are rigged against them.

Wed, 02/26/2014 - 15:39 | 4481340 youngman
youngman's picture

On CNBC all they have been saying all day is the inventory shortage is to blame ....so this should open up some new inventory...but it will all go to Blackrock in some backroom deal...

Wed, 02/26/2014 - 15:41 | 4481347 Ness.
Ness.'s picture

My neighbor, while going thru a divorce, decided to stop paying his mortgage just to save some money and see how long it would take for him to get escorted out of the house.

After two full years, and saving nearly $60,000, he contacted the bank and said he was going to move.

They offered him a deal. Just start making the payments and they would forgive him the past two years without penalty.  All he had to do was send the next month's payment and they would consider him up-to-date on the mortgage.

He removed all of the cabinets, copper, appliances, countertops - sold it to a contruction crew, and told bank to fuck off.

 

 

Wed, 02/26/2014 - 15:46 | 4481392 replaceme
replaceme's picture

I read those stories, and I end up thinking "Oh, so he was a thief and or a scumbag".  The banks will get theirs one way or the other, he said fuck off to everyone else.  Fuck him,  Maybe he can buy steal a sawz all and go cut copper out of other houses, too.  

Wed, 02/26/2014 - 15:58 | 4481453 Seasmoke
Seasmoke's picture

Wrong. Wrong and wrong. You should pay attention at ZH a little more. 

Wed, 02/26/2014 - 16:06 | 4481494 replaceme
replaceme's picture

He stopped paying because he wanted to, and then to be more of a prick, he stole whatever he could?  Yea, he's a real Robin Hood.  A dozen of his neighbors that bought houses they maybe like, at a reasonable price, they're probably stuck with, get to live by his mess, watch their property value drop a little more.  Yay him.  

Just because bankers are scumbags doesn't let him off the hook - honestly, why doesn't he go up and down the block and steal copper?  The meth crowd does it all the time, he'd fit right in. 

Wed, 02/26/2014 - 16:14 | 4481540 Ness.
Ness.'s picture

I didn't say he wasn't a prick.  Hey, I still had to make my payments every month.  If I didn't live next to this fucker I wouldn't have believed it myself.  He was flying all over the country meeting women he'd met on match.com with the "extra" money he saved.  My point was that the housing situation is much worse than we're being told and banks are sitting on ALOT of houses. They're allowing people to stay for free to maintain the homes or they would simply start falling apart. 

Wed, 02/26/2014 - 16:26 | 4481592 TruthInSunshine
TruthInSunshine's picture

Few will believe me, and that's okay, but I PERSONALLY know (i.e. know that what I'm writing is true) an individual who defaulted on a 1.8 million dollar mortgage bearing house from BankOfMerrill in 2006, made no payments for 5 years, disregarded every notice of delinquency, etc. they sent him, and then was allowed out of the house with no deficiency when his good friend agreed to buy the house on a short sale for 580k in March of 2011, who sold him his house back for that amount.

So, he lived mortgage free in a 1.8 million marked house from 2006 to 2011 (he paid the utilities & I think the taxes), then bought it for 70% off in 2011.

Bitchez.

Wed, 02/26/2014 - 16:36 | 4481673 replaceme
replaceme's picture

Sorry, I didn't mean to imply anything about you - I just saw that happen a lot in the historical district we used to live in, really got under my skin.   All the neighbors that took care of their places, paid their bills, etc had to watch those empty houses decay (and in some cases, burn).  It really crushes the spirit of a neighborhood.

Wed, 02/26/2014 - 16:44 | 4481720 TruthInSunshine
TruthInSunshine's picture

No, I prefaced my comment like that because I've had experiences where people just don't believe it to be possible, not because of anything you wrote.

I think honest people, generally speaking, become morally outraged when they hear anectdotes like that (that are actually more common than many are willing to believe), both at BankOfMerrill AND the guy who defaulted without paying his mortgage for 5 years only to buy his house back from a straw buyer for 70% off.

Wed, 02/26/2014 - 16:00 | 4481466 cynicalskeptic
cynicalskeptic's picture

and fuck all your neighbors stuck living next to the mess you've left behind.....   if your philosophy is 'Every man for himself' you're going to find it VERY lonely when you NEED help from others.......

Wed, 02/26/2014 - 15:50 | 4481410 Seasmoke
Seasmoke's picture

Nice. I often wonder why anyone would leave their house to the bank with anything standing except 4 walls and a roof. STRIP THAT OVERPRICED BOX TO THE BONES !!!......Fuck you Jamie. Fuck You John. Fuck You Brian..AND FUCK YOU LLOYD. 

Wed, 02/26/2014 - 16:17 | 4481556 InflammatoryResponse
InflammatoryResponse's picture

better not let your neighbors know where you moved to.  you might end up with some difficulties of your own.

 

Wed, 02/26/2014 - 18:58 | 4482390 Au Shucks
Au Shucks's picture

I often wonder why anyone would leave their house to the bank with anything standing except 4 walls and a roof.

 

Simple, they offer the soon-to-be-foreclosed person a fat check... upwards of $4k to clean the place out and give them the keys.  For most people, an easy 4 grand is a better alternative to stripping and selling the individual components of value.  So they comply, bank takes a small hit to get the house in good shape, and more than makes up for it on the resale in most cases.

All good until the 1099-A hits their mailbox the following January and they realize they have to pay back over 25% of it as if it were income!  Whereas they wouldn't have paid a penny to the war machine on whatever they kept and/or sold direct.

 

Wed, 02/26/2014 - 15:54 | 4481430 JLee2027
JLee2027's picture

LOL. Shows what a scam the whole thing is. Please be our debt slave.

Wed, 02/26/2014 - 17:14 | 4481931 new game
new game's picture

yep, and the hoops people will jump thru to get that loan. the home thingy has become brainwashed bend over no vasoline for a roof... even with the average income know itemizing is iffy.  if we get back to the bottom or near, i will emerge from the woodwork and become a decisive buyer...

Wed, 02/26/2014 - 21:59 | 4483049 lotsoffun
lotsoffun's picture

++

Wed, 02/26/2014 - 15:44 | 4481350 Mercury
Mercury's picture

Which means that as the inventory bottleneck suddenly unclogs and thousands of new properties hit the market with an urgency to sell before anyone else does, things in New York and especially New Jersey are about to go from bad to worse.

 

And the market finally clears as it should have years ago.

Come on guys, you can't have it both ways.

This is a net Good Thing.

Wed, 02/26/2014 - 15:46 | 4481393 halfawake
halfawake's picture

Not so fast.. our environment has long past any vestige of free market.. later in the article:  "Newark, the state’s most populous city, and nearby Irvington are considering plans to use government power to seize underwater mortgages to help homeowners reduce debt and avoid foreclosure. The cities are researching a program that would offer fair-market value for the loans and reissue them to homeowners who can afford to keep making payments at the lowered amount."

 

It's for the people/kids/economy!

 

I deny consent.

Wed, 02/26/2014 - 15:54 | 4481431 Mercury
Mercury's picture

Indeed.

Well then, to the extent that haoppens, not much will have changed and we're back in Zombie land.

Wed, 02/26/2014 - 16:20 | 4481576 halfawake
halfawake's picture

Yup. I think the worst part of most of us ZHers is the cognitive dissonance that resolves around a black swan, market collapse, societal collapse, all of a sudden... but fail to realize that tptb are boiling frogs already in the water. Fabian animal is a turtle. It's drips, here and there, or else the populace will wake up. Maybe a big war, but that'll just reflate everything, including sheepishness. But I still love us. /endrant

Wed, 02/26/2014 - 15:51 | 4481411 Tyler Durden
Tyler Durden's picture

It is a good thing for those who are waiting to buy at lower prices (as you said, to "clear"). It is a very bad thing for those hoping for housing appreciation (mostly Wall Street institutional flippers these days), and an economy which requires inflationary expectations to force consumers to spend.

Wed, 02/26/2014 - 16:11 | 4481479 Mercury
Mercury's picture

I get it but in the bigger picture this is the kind of thing we want to see more of.

If you have any faith in the individual’s ability to deploy capital more effectively than central planners then the macro-economic benefit of incoming homebuyers, who can now finally find a place to buy at their price point (and without as much competition from the likes of Blackstone) should outstrip the economic drag associated with the foreclosed-on (now former) homeowners.

 

Wed, 02/26/2014 - 16:15 | 4481548 Tyler Durden
Tyler Durden's picture

Of course. The problem is that in this artificially propped up economy and market, if it were left to "price discovery" on its own without external support, everything would crash and burn, literally, overnight.

Wed, 02/26/2014 - 16:29 | 4481588 Mercury
Mercury's picture

Ahh. The "great reset” that is both eagerly anticipated and feared (and denied).

 Well, hopefully (I can't believe I'm playing the optimist here) some incremental steps such as this can be taken here and there so as to lower that baby closer to the ground before the cables snap...

 

Wed, 02/26/2014 - 16:24 | 4481599 ArkansasAngie
ArkansasAngie's picture

Economic value 

Screw The Fed and their bubbles

Wed, 02/26/2014 - 16:33 | 4481662 Hippocratic Oaf
Hippocratic Oaf's picture

Mark to market mother fuckers

Wed, 02/26/2014 - 16:50 | 4481755 TruthInSunshine
TruthInSunshine's picture

That's what's going to bring it to popular attention that we've entered a 2nd Economic Depression.

This is in no way a defense of CB monetary policy, but if they didn't do what they did, the debt serfs wouldn't keep borrowing and spending borrowed fiat (how could they?), and it would all crash and burn quickly.

So, they're merely stretching the process out, and in that process, creating MASSIVE NEW FIAT ISSUANCE, much of which will be burned on balance sheets anyways.

Their hope, some say, and arguably, was to try to induce real GDP and economic growth based on growth in productivity in sectors that create real wealth.

Others would argue that they were merely taking the easy way out and reflating bubbles because it worked to delay the reckoning for a while during the last meltdown episodes (I'm in this camp).

Blowing, Reflating & Chasing Bubbles. A Central Banker's Story.

Wed, 02/26/2014 - 15:41 | 4481359 NOZZLE
NOZZLE's picture

When Teresa Guidice and her Gomba husband get tossed from their mansion into the street and prefe4ably prison,  then I'll think this is real.  And I want her fake tits repoed on live Tv.

Wed, 02/26/2014 - 15:42 | 4481363 youngman
youngman's picture

Here is a funny....I have a President of a Community College looking at my condo...has seen it three times now....to me its offer time....but I bet he is reading the news and is waiting.....so he does not believe the liberal stuff he teaches his students at his college....it is a very liberal college....

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