While the number of foreclosures in New Jersey jumped this summer, the figure remains modest, and experts speculate that the short and medium-term impact will not be as destabilizing as elsewhere in the country.
Subprime mortgages have not been a common financing option in the Garden State. Indeed, experts say they were most heavily used in only a handful of disadvantaged neighborhoods in only a few counties.
Still, the state isn’t in the clear. Even with the half-point interest rate cut by the Federal Reserve Bank in late September, analysts warn that thousands of families are struggling to make higher payments on their adjustable rate mortgages. This could lead to more foreclosures — possibly as many as 7,000 to 12,000 — in the next year.
“The Jersey market is weak but still has life,” said Jeffrey Otteau, president of the Otteau Valuation Group, a New Jersey-based real estate research firm. “If all these foreclosures do occur, it could take several years for the New Jersey market to recover.”
Bill Hanley, president of the New Jersey Association of Realtors, says the foreclosure crisis hasn’t significantly dragged down prices. He remains bullish about buying opportunities.
“There are investors looking for foreclosures,” said Hanley. “It’s going to have a short-term effect. The one thing with real estate is, it’s resilient. It will not be a disaster.”
Altogether, banks initiated 215 foreclosures in New Jersey in July. That’s 65 percent more than the same time last year.
Presently, about 72,000 homes are for sale in New Jersey.
Yet for now, the slightly worsening foreclosure news in New Jersey is countered by a positive indicator of real estate health. According to a September report by the Otteau Valuation Group, the unsold inventory of homes in the state declined for the first time in 2007.
While the decline was for less than one percent of unsold inventory, it suggests the impact of the subprime mortgage mess in New Jersey may be contained in a few specific communities.
A decline in the inventory of unsold houses is important because economists believe that as the choice of homes narrows, buyers become anxious to make purchases sooner rather than later, which further reduces inventory — and can push prices upward.
Presently, the unsold inventory in New Jersey stands at 8.9 months. That’s looser than during the boom times of recent years; in July 2005 the New Jersey inventory of unsold homes stood at four months.
In northern New Jersey, most of the foreclosures have occurred in heavily urban sections. In Essex County, where Newark is located, there were 435 foreclosures this year. Union County, home to Elizabeth and Plainfield, has had 415 foreclosures. Passaic County, which contains the depressed cities of Paterson and Passaic, has seen 321 foreclosures.
While Essex, Union and Passaic Counties are largely suburban, and have some of the wealthiest communities in the country — including Short Hills in Essex and Summit in Union — the depressed inner cities in those counties have seen homebuyers rely heavily on subprime mortgages, contributing to the rise in foreclosures statewide.
“Many of the people who did subprime were inner-city residents,” said Hanley. “[They were] people who did not have any financial backing at all.”
Hudson County, the site of Jersey City and the state’s most urban county, is so far escaping the subprime crisis. That may be because many of the recent home purchases there have been by young professionals with higher salaries and better credit scores.
Data compiled at the end of July show New Jersey ranks 28th among states in terms of numbers of foreclosures. (Michigan is the state suffering the worst real estate unraveling, with one foreclosure for every 944 households). As of July, the national average was one foreclosure for every 4,637 households.
“Clearly while this exists in other states, it is still a small problem in New Jersey.” Otteau said.