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.


Unemployment – In National Scale from Best to Worst: New Jersey is # 38

Unemployment Rates for States.

As unemployment took a dip nationally to 8.3% last week, New Jersey remains mired at 9.0% –  that is 0.7% higher than the national average and # 38 in the list of all 50 states offered by the U.S. Department of Labor, Bureau of Labor Statistics.

All the states that surround us geographically score better than New Jersey. We are worse off than Maryland, Delaware, Pennsylvania, New York, and Connecticut.

Governor Christie has been very apt to point out to one of the main reasons why the above statistics are so dismal: The state is unfriendly to businesses – those are the employers – because taxes are too high and that is because government spends too much.

But he has been disingenuous as to why it is so: Government spends too much on itself rather than on New Jersey. Look at our roads and bridges. Look at our Public Pension System. Look at our Unemployment Insurance Fund. When he addresses the issue of cutting spending, it is always that part of spending that improves the lives of most New Jersians that he wants to cut; never the sacrosanct political apparatus of agencies and more agencies filled with political hacks that produce nothing.

The press just reported a few days ago that he had appointed some 50 loyalists to positions in the Port Authority of NY and NJ and while some democrats criticised him, they also sought to appoint their own allies to the agency. Incidentally, I do believe that New Jersey must abandon the custom of having independent agencies for tending to roads and bridges. We must transfer all the productive employees to the DOT, adopting their union contracts if they are unionized, and fire the political hacks. And we must strengthen Civil Service Laws to prevent future abuses.

We may also add a second reason for the economic malaise in New Jersey – not mentioned by the governor explicitly but implicit in his proposed 10% tax cut: The extraordinary size of  government makes life in New Jersey very expensive and therefore the aggregate demand in the New Jersey economy is below that of its neighbors. His proposed 10% cut however will not alleviate that situation. Aggregate demand does not respond well to tax cuts executed in a linear fashion.

The dilemma for the governor – or for any politician of either party for that matter – is that to truly cut spending in New Jersey they will have to dismantle the very system that keeps them is their positions of power and privilege, elected term after term, smothering all opposition in insidious ways disguised as laws.

So if unemployment falls in New Jersey too in the coming weeks, we may credit two things: the ingenuity of New Jersey in spite of all the odds or that economy improvements across the state lines are sunbathing the New Jersey economy. But the hands of the governor are tied by the  same strings that placed him in office.

Work-while-unemployed program is no panacea

Georgia and New Hampshire have programs where the unemployed are matched with companies for “training on the job” without pay but still collecting benefits. There have been some modest results. Georgia gives an additional stipend to the trainees. New Hampshire does not.

The article points out at two problems besides the fact that results have been scant.

1. It is costly. It creates another government department to administer and monitor the program.

2. Fraud. Some employers use the trainees as free labor without any intention of hiring anybody.

Furthermore, if program does not meet definition of training but is rather plain work, it would be illegal for having people working under minimum wage.

I believe I have a more serious objection: It is a distraction. Employers will not hire until demand increases and demand will not increase until people have more money and feel more confident to spend it. Let’s focus on the fundamental causes of our economic decline and not on marginal, and  ineffective, remedies. Bottom line: the majority owes too much and earns too little.

President Obama is interested in the plan.

New Jersey: Multi-generation households on the rise


There is obvious an economic connection to this trend. But there may be also a cultural undercurrent among minorities as more immigrants from Latin America and India settle in the state.

The multi- generation household is typical in those cultures and it is viewed as a more desirable arrangement. Elders take care of children and house chores while the middle generation works.

But the economic crisis has certainly increased the trend . Necessity brings about cohabitation. The high cost of renting is also a factor for the younger generations.

Wages have failed to keep up with cost of living overall.

This is just another symptom of the social stagnation that the nation has experienced, gradually augmenting, during the last 3 decades. Upward mobility has all but vanished as opportunities become scarcer. The American dream is becoming more and more out of reach for many. The youth ideal of graduating from school, getting a job, and moving out on their own is unattainable even for many college graduates.

Very often, even the most fortunate are forced to join roommates to be able to afford housing.

There are also more couples living together without being married and more same-sex couples.

Percentage of Americans working the lowest since 1983

Only 58.1% of Americans work; the lowest figure since 1983. Figures about sub-standard employment and part-time jobs were not available in the article.

The reduction of the American work force has ominous implications for the future.

Number of jobs increases in July; more than doubles June show

Still, the gains are modest and 75,000 of the new jobs are in the services industries, in typically low paying jobs. Only 8,000 were in construction. Government, at all levels, shed jobs.

The jobless rate declined as 193,000 people left the labor force and the number of unemployed dropped by 156,000. Does that mean that they ran out of benefits?

The share of the eligible population holding a job declined to 58.1 percent, the lowest since July 1983.  If so, the cumulative number of unemployed, underemployed, and those who have disappeared from all statistics after a long time off the payrolls is a staggering 41.9%

I estimate that about 25% of the work force want to work but can’t find a job or are working part time while they would like to work full time.


Consumer spending down in June. We need reforms

Lack of hiring and stagnation in the wages of those employed or sub-employed put a severe damping on household spending, as I have predicted. It is the logical consequence of the squeezing of the middle and lower classes.

In view that 70% of the economy is consumer spending and that those well-off are too small a minority, incapable of fueling growth all by themselves, significant recovery is highly unlikely until socio-political conditions are transformed. That is what I would try to implement in New Jersey if elected governor in 2013.

That is what my program, presented in this blog, is all about.