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COURT HOUSE – A concerned public has spent two months watching the daily numbers on new COVID-19 cases: the percentage of individuals who recovered and moved off quarantine, and the number of people who succumbed to the disease.
Several economists have been watching a different set of numbers, including the number of mortgages that go into forbearance, the percentage of individuals who can make payments, even while in forbearance, and the projections of foreclosures when temporary federal and state protections are removed.
Nationwide, April was a scary month for those who follow the housing market. The month ended with 4.25 million loans in forbearance, representing 9% of the total active mortgages, and over $1 trillion in unpaid principal balance.
The numbers coincide with unemployment claims. April saw an unprecedented spike in jobless claims while also witnessing the largest single-month increase in the mortgage delinquency rate on record.
April was also the cruelest month in terms of the public health impact of the pandemic. Government at all levels tried to help with the potential housing crisis, with temporary bans on foreclosures and evictions, increased availability of forbearance options, and extended grace periods for property taxes.
The good news, in April, was that 46% of the homeowners who sought forbearance protection made payments. In May, worries grew as that percentage dropped to 21%, even as the number of homes in forbearance declined. Extended forbearance periods, moratoriums on foreclosure activities, and one-time federal stimulus payments act to camouflage the potential extent of the housing problem.
If there is a national reason to worry, there is a reason for New Jerseyans to be even more concerned. The state, pre-pandemic, was not in good shape to weather an economic storm. Again, looking to April, New Jersey’s mortgage delinquency rate jumped 5.1%, with only Nevada and New York performing worse.
In Cape May County, the types of foreclosure problems that dogged the housing market after the Great Recession and following Superstorm Sandy have not reappeared in the most recent data. Across the county, 22 homes entered foreclosure before April 1, according to state banking records. Those numbers are not inconsistent with normal activities pre-COVID-19.
The available metrics are on a larger than local scale. The message they convey is mixed. The trend of fewer homeowners in forbearance remitted payments in May than did so in April is partially off-set by the Mortgage Bankers Association data that shows purchase applications for residential properties were higher than the previous year, using end-of-May numbers.
The tale that municipal property tax receipts might tell is somewhat distorted since mortgage servicers have had to advance $1.5 billion a month in taxes and insurance payments on behalf of delinquent borrowers.
One survey by Lending Tree showed that many homeowners who applied for forbearance didn’t need it. The quick passage of forbearance legislation often left those who sought protection not required to prove their level of need.
How bad is the housing problem, and how bad is it likely to become?
In April, in New Jersey, the single-month peak in home mortgage delinquencies was nearly three times what it was during the 2008 recession. Experts predict that the sheer volume of loans in forbearance means that significant numbers will eventually default and move to foreclosure.
New Jersey entered the pandemic with a housing market that was already struggling. National studies show that New Jersey was among the worst-performing states in terms of home price recovery from the Great Recession.
Layer this on relatively low general levels of home equity pre-pandemic, add steep property taxes, a high cost of living, and dampened population growth. The recipe is for another long period of recovery.
A lot will depend on how quickly the local economy can rebound from COVID-19. After the Great Recession, median home values dropped in the county annually for five years.
Stockton Economist Oliver Cooke told the Cape May County Chamber of Commerce, in February, that the last five years were characterized by steady growth in home buying and increases in housing prices. Real estate valuations in the county rose by $7 billion in that period, gaining back lost ground.
Cooke also said, in the pre-pandemic presentation, that the healthy economy of 2019 was based largely on consumer spending, leaving a post-pandemic economic recovery vulnerable to consumer confidence levels, especially in a county heavily reliant on tourist activity.
As a result of the 2007-2010 subprime crisis, 8.6 million borrowers received a mortgage modification and 8.9 million homes went into foreclosure. Some economists argue that the Great Recession was a housing market crash, driven by risky mortgage products and artificially pumped up prices. That led to severe price declines, rising negative equity situations, and a flood of defaults. They argue that today’s recession is similar to one that follows a natural disaster and should not lead to the same housing market impact.
Yet, with the state looking to borrow billions to off-set revenue losses, with a rainy day fund that the Pew Charitable Trust estimates will cover less than one day of normal state expenses, and with municipalities required by law to sell property tax liens, adding interest and penalties to delinquent amounts, it is not clear where help will come from for struggling homeowners.
The Kroll Bond Rating Agency published a recent analysis of what variables predicted the likelihood of forbearance requests. The variable with the second-highest predictive value is whether the property was located in New Jersey. As of two weeks ago, at the end of May, New Jersey was fourth in the nation in terms of the percentage of non-current mortgage loans at 9.4%.
Those who predict a swift return to pre-pandemic normalcy must confront many indicators to the contrary, especially concerning the housing market.
To contact Vince Conti, email vconti@cmcherald.com.
