In North Jersey Foreclosures Are Up, Home Sales Down

The Record ( — Sunday, August 24, 2008


In a painful sign of the worsening real estate downturn, foreclosure actions in North Jersey nearly tripled in the first five months of 2008 over the same period in 2007, an analysis by The Record has found.

At the same time, the volume of housing sales has plummeted this year. And North Jersey home values, which held steady while many of the nation's housing markets steeply declined in the last two years, have begun to crack.

Median home prices declined 2.3 percent in Bergen County and 8.2 percent in Passaic County in the first half of this year, compared with the same period in 2007, according to a Record analysis of public property records.

"If you bought your house less than five years ago, you've seen a decline in the price," said Crystal Burns, an agent with Re/Max Advantage Plus in Teaneck.

Still, the region's housing prices have held up better than the nation's, where average prices have declined more than 15 percent, according to the Standard & Poor's Case-Shiller index of 20 metropolitan areas.

But the rising foreclosure numbers are a sign of trouble. About 2,800 North Jersey residential properties – roughly one out of every 135 – were in some stage of the foreclosure process from January to May 2008, compared with about 1,000 – or one in 385 – a year earlier, according to The Record's analysis of data from RealtyTrac, a California company that follows the market. Those numbers range from initial notices that a homeowner is in default on mortgage payments to a sheriff's auction of the house to satisfy the debt.

And 335 actually lost their homes to foreclosure in the first five months of this year, a seven-fold jump from the January-May 2007 period. Most of those properties went back to the lenders.

Foreclosure actions are most often seen in lower-income areas, where recent homebuyers often relied on mortgages they couldn't sustain over the long term. But even in some affluent towns where foreclosures were once almost unheard-of, such as Saddle River, the rate has shot up this year.

Distressed sales don't just affect the devastated homeowners. They also tend to pull down property values in the neighborhood, because distressed properties are usually priced at a discount for quick sale.

Social service agencies are being flooded with calls from homeowners in distress.

"Some people we can help, because there are some lenders that will negotiate," said Phyllis Salowe-Kaye, head of NJ Citizen Action, which does housing counseling.

"But about half of the people who come in here can't be helped," she continued. "They don't have the money to pay the current loan. They don't have enough equity to refinance. And they don't have a lender who's agreeing to negotiate. Those people are eventually going to get foreclosed on."

"When a counselor says to them, 'You just can't afford to stay in this house,' it's very upsetting," said Sylvine Marabotto of the Consumer Credit Counseling Service in Cedar Knolls. "You're talking about someone's security and the place where they feel safe."

Many of these buyers bought a few years ago with adjustable-rate, no-down-payment or interest-only mortgages that keep initial payments low. But many will see their monthly payments rise to levels they can't afford in the next couple of years, experts say.

"We haven't even hit the worst part of the problem," said Salowe-Kaye.

Rick Del Guercio of Appraisal Systems Inc. in Glen Rock said he is starting to see the effect of rising foreclosures, especially in working-class towns such as Ridgefield Park, where many families stretched beyond their limits to buy their first homes.

"It's the people who had to go for teaser rates, no-money-down, interest-only loans to buy a house," Del Guercio said.

Prices in most places are down, although the percentages vary greatly town by town, according to a Record analysis of property sales records. The biggest drops – 15 percent or more – from 2007 to the first half of 2008 were mostly recorded in lower-income towns such as Fairview, Passaic and Lodi. By comparison, prices were down less than 6 percent in Englewood Cliffs, Closter, Glen Rock, Kinnelon and Wyckoff.

Many prospective buyers are either holding out for cheaper prices or low-balling with "offers that are kind of ridiculous," said Mark Werner of Werner Realty in West Milford. Like many Realtors, he argues it's a good time to buy, because many sellers have dropped their prices. He pointed to the experience of recent clients, who "got a great deal on a trade-up house."

"They're in a neighborhood they couldn't afford two years ago," he said.

But many other buyers are apparently holding back – either because they expect prices to fall further or because they can't get mortgages. The number of sales in North Jersey this year is running about half the rate of the peak in early 2006 – with Bergen County sales down around 44 percent and Passaic County sales down around 61 percent. Fewer than 900 properties changed hands in Passaic County during the first five months of this year.

Lisa Molnar of Skylands Appraisals in Ringwood said prospective buyers "are just terrified. They think, 'Why would I buy a house if values are going to decline?'Ye"

The drop in sales was generally biggest in lower-income areas. For example, sales were down more than 70 percent in Paterson, Passaic, Prospect Park, Fairview, Bogota and Ridgefield Park.

This reflects the fact that many prospective buyers in these towns can no longer qualify for mortgages, since lenders tightened standards after many exotic mortgages started going bad in 2007.

By contrast, sales were off only about 5 percent to 6 percent in Ramsey, Wanaque and Edgewater.

Another reason for the decline in sales volume: Many would-be sellers are keeping their homes off the market, hoping for better prices down the line.

Where home sales and prices are headed is, of course, anybody's guess.

One reason the housing bubble burst is that prices rose much faster than incomes in the first half of the decade.

"We're all crying the blues, but it was ridiculously high in 2004," Del Guercio said. "I was seeing Cape Cods on 50-by-100 lots in South Bergen for more than $500,000."

Ultimately, many would-be buyers just couldn't afford these prices – especially after lenders stopped being so free with mortgage money. Declining prices, while painful for sellers, will ultimately allow more buyers to afford homes.

"I don't think we're going to see an increase in prices any time soon," said Adam DeFino of DeFino Realtors in Wyckoff.

The National Association of Home Builders' home price affordability index, released last week, suggests that the region's homes are still too expensive for many people. The NAHB ranks the New York metropolitan area, which includes Bergen and Passaic counties, as the least affordable in the nation.

"I think there's still room for the market to fall, but it's still Bergen County, it's still the New York metropolitan area," Del Guercio said. "It's an easy hop into the city, and the schools are the best in the state. There's always going to be a demand for housing in Bergen County. Prices will get to a point where it gets low enough that people will say, OK, it's time to jump in."

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