New Wave of Foreclosures/Auctions Could Drop Home Prices 10%

After more than a year of relative calm due to the review of lenders practices, the wheels of attrition in the hosing market are beginning to turn again. As many as 1.25 million of America’s abandoned or neglected homes are headed for sheriffs’ sales and auctions.

Home Prices Seen Dropping 10% in U.S. on Foreclosures: Mortgages – Bloomberg.

“Sales of repossessed properties probably will rise 25 percent this year from 1 million in 2011, according to Moody’s Analytics Inc. Prices for the homes could drop as much as 10 percent because they deteriorated as they were held in reserve during investigations by state officials resolved in February, according to RealtyTrac Inc.”

Even though New Jersey law allows municipal appraisers to disqualify these homes when it comes to a tax appeal, the flood of distressed sales has an effect on the market and on the value of all houses. Homeowners who are still holding on to their properties are the losers in this picture.

Simultaneously, lenders may begin to move faster to foreclose on delinquent homeowners. Since the delinquent homeowner is typically one who has little money, those houses have for the most part been neglected too. Occupants may resort to short-cuts or temporary repairs when problems arise or do nothing at all. Some homeowners, feeling victimized by the banking system, have actually vandalized their own homes prior to eviction.

“The best measure of the influence foreclosures have on the broader market is the 20-city S&P/Case-Shiller home-price index that tracks deeds, including homes sold directly by banks and deals that don’t use mortgages, said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts. The index probably will fall 5 percent to 10 percent this year, a range that depends on the condition of the mothballed homes, he said. ”

Some of the abandoned homes are in such a state of dilapidation that they may have to be bulldozed.

Although the situation involves the entire country, New Jersey may be affected more than average due to the fact that unemployment is the highest in the Northeast (with the exception of Rhode Island) and property taxes are the highest in the nation and can certainly add to the misery of homeowners almost the same as if they had a second mortgage.

My proposal of abolishing property taxes for primary residences of New Jersey taxpayers would have a soothing effect on the housing crisis. People would truly own their homes after their mortgages are paid off. But for that to occur, I have to be elected governor first and that, if you decide that it will happen, will not be until the end of 2013. For some homeowners, it will be too late.

The current administration of governor Christie has little sympathy for property tax relief. We already know that his 2% property tax cap is full of loopholes. The democrats in the Legislature have proposed a modest property tax cut but it would not be sufficient to reverse the tide of bad news. New Jersey needs shock therapy; bold measures, and these will not come from either political party. They are just too comfortable with the status quo and basically don’t care.


Lessons for New Jersey Found in Greece

Greece’s debt swap looks like it might work – Mar. 7, 2012.

The deadline for private investors accepting a haircut of their Greek holdings is tonight. If a sufficient number of investors approve the deal, which involves losing up to 75% of their investment, Greece will then enforce what is called Collective Action Clauses (CAC) – essentially forcing the investors reneging of the deal to accept the same terms.

The CAC are terms Greece and many other bond issuers insert in their prospectus at the time of offering. It is a contract point.

If not enough private investors agree on the Private Sector Involvement agreement (PSI), – the haircut – then Greece would not be able to apply the CAC and a disorganized default would take place, at worse terms for investors.

A disorganized default could cost over €1 trillion and send shock waves throughout the world economy.

Private institutional investors own about 41% of the €206 billion Greece owns to private investors. That includes banks, insurance companies, pension systems, hedge and mutual funds, etc.

Some Investors who own Credit Default Swaps (CDS) – a sort of insurance policy against default – may be reluctant to accept the haircut offered by Greece.

The Lessons for New Jersey: Unlike Greece, New Jersey can not officially default but can default de facto – as a matter of fact – by missing payments on its outstanding debt. All the current proposals for tax reduction or tax credits made by both the Governor and the Legislature lack solid fiscal footing, are based on wishful thinking, and are too small to have the intended economic effect – if there was any intention other than a political stunt preparing for the 2013 election.

I like tax cuts like everyone else but not when I will have to pay back the money with interest in a few years or my sons will have to if New Jersey’s liquidity outlives me. The current proposals are nothing but irresponsible.

The New Jersey Government, both sides of the aisle, are placing New Jersey on the same path Greece followed, exactly for the same reasons Greek politicians did: To perpetuate themselves in power.

My Administration Vis-a-Vis Public Sector Labor Unions

Governor Christie spent his first two years in office maligning public employees. A number of persons have asked me about what my posture would be regarding the public sector and I have provided them with it. However, I reached the point when posting an article on the subject makes more sense than repeating the same formula over and over again.

I was president of a local union once. If elected governor, I will be the management: It is a drastic role-reversal.

A brief description of the Public Labor Law In New Jersey:

The Public Employment Relations Commission (PERC) is the supreme arbiter in public labor relations matters – more or less in the same fashion as the National Labor Relations Board (NLRB) is for the private sector. New Jersey Law for the public sector has the provision of No Strike/No Lockout. In contractual disputes, the path is Negotiations – Fact Finding – Mediation – Arbitration. Contrary to what governor Christie and even the press have said, the power of the arbitrators is limited by the framing of the issue. For example, if the dispute is over wages, the arbitrator can not include in his/her award anything other than money. If the arbitrator exceeds his/her scope, any of the parties – or both in a joint petition – can ask PERC to overturn the award.

Fact Finding is a survey that both sides do of prevalent conditions relevant to the dispute in similar organizations or local unions to gather supporting data prior to mediation or arbitration.

Because mediators are often more expensive than arbitrators, in many cases the mediation step is omitted.

In the solution of disciplinary and certain promotional disputes, Civil Service Law may also play a role. Civil Service Law supersedes the arbitrator’s award. I believe it is the same case with teacher’s tenure although I am not familiar with tenure rules.

In January 2014, I would ask the New Jersey Legislature to introduce a law to bring about a popular referendum consolidating all police forces of New Jersey into the Police of New Jersey – a force with central command and data base. Similarly, I would ask for bringing all school districts under State control in the form a New Jersey Board of Education and the New Jersey Department of Education. Local police and schools would not be disturbed. It would be only the command and administration, respectively, that would change.

NOTE: The Police of New Jersey would be under the Department of Law and Safety which may be renamed Department of the Interior and consolidated with the N.J. Department of Corrections.

As the consolidation takes place, the State of New Jersey would automatically adopt all the existing labor contracts. The State would become the employer negotiating with several dozen local unions, all with different wage scales. There is nothing abnormal or new here. It happens all the time and even within a same local union there are two tiers of employees at times.

I would then ask the DOI and DOE setting a dividing line which could be the median or the average – whichever is lower – of existing wages and our negotiating position every time a contract came for renewal would be determined by whether the wage scale open for negotiations is above or below that line. Our policy would be to bring the pay scales closer and Fact Finding would be our best tool in achieving that goal. FF would only help those unions below the line.

Regarding Health Benefits of public workers: I believe the current reform law calls for a return of this issue to the negotiable list of items in 2014. Under my administration, it shall remain a negotiable issue although, as with wages, we will strive to achieve uniformity throughout New Jersey.

New Jersey is a Fiscal Time-Bomb

NJ Spotlight | Budget Expert: Income Tax Cuts Will Benefit the Rich.

Christie and the democrats debate the merits of the proposed 10% tax cut and both miss the train. They want to make omelettes without cracking eggs, gain without pain, have the cake and eat it too.  As the Office of Legislative Services points out: The Tax cut as proposed will produce an insignificant benefit for all but a small minority.

Let’s forget about fairness for a moment:

From the strictest economic viewpoint, the 10% tax cut would fail to create the additional aggregate demand needed to stimulate the economy and I am presuming that that is the ultimate goal. Why would it not work? Because the immense majority of consumers would see their finances hardly changed by it – apparently Christie’s goal: The 10% cut is designed so that most people see almost nothing of it.

But even if we put that billion – following the democratic recipe – toward property tax relief, it amounts to approximately 2.2% of the total property tax paid by New Jersians – the equivalent of freezing property taxes for one year; again hardly worth to write home about.

Since the 2% cap is rather flexible, municipalities would find ways to make up for the one-year freeze. In fact, they would be forced to do so by their obligations. Postponed obligations accrue more debt. On the other side, Christie and Sweeney can talk all they want about merging services: It will not happen to the extent or with the speed needed.

The ultimate purpose of any fiscal measure should be to stimulate growth. Even measures of austerity should have the long term goal of stimulating growth. With growth come jobs, better wages, better infrastructure, more accessible education opportunities and wider horizons for our youth, higher standards of living, etc. I presume we all want our children to live better than we have. But everything that has been put on the table by both parties is insufficient: We have serious structural problems and among the main ones is the very expensive political class that permeates everything. We must address those structural problems with drastic reforms if we want to reverse an otherwise inexorable decline.