National foreclosure inventory stands at 1.5 million homes — a five-year low — according to the
latest figures from the Mortgage Bankers Association.
Yet despite the nationwide decline, foreclosure inventory has been rising in the judicial states of New York and New Jersey. A judicial state is one that requires court action on a foreclosed home (i.e., a judge must sign off on the foreclosure before the lender repossesses the property).
New York’s foreclosure inventory stood at 144,000 at the end of the third quarter, and New Jersey’s was at 119,000 — both around peak levels.
“New York’s foreclosure backlog has been made worse by a requirement that lenders positively affirm that all elements of a foreclosure filing are correct, while mitigation programmes in New Jersey may be dragging out inevitable foreclosures,” writes Paul Diggle, a property economist at Capital Economics, in a note to clients.
Diggle told Business Insider he believes the foreclosure overhang could have been exacerbated by Hurricane Sandy. Some borrowers that weren’t fully insured at the time may have chosen to walk away instead of rebuilding their homes.
The judicial process means it typically takes about two years from the last payment made on a mortgage to foreclose on a home in New York and New Jersey, compared with states like Alabama and Missouri where it takes less than a year.
This foreclosure overhang, weak demand, and relatively high unemployment rates are the main reasons Diggle doesn’t think either state has good short-term housing market prospects.
“A robust recovery is unlikely to emerge anytime soon,” says Diggle.
The chart below plots the rise of foreclosure inventory in New York and New Jersey against the decline in Florida, which still has the nation’s largest foreclosure inventory in absolute terms.