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Wednesday, August 8, 2012

Major Housing Price Drop Coming in NY, NJ, IL, FL: Trulia

Trulia is now admitting that the foreclosure glut has not hit some major states, from which one should infer that prices in those major states have not hit bottom. 

Jed Kolko from just acknowledged on the Bloomberg radio show "Bloomberg Surveillance" this morning that Florida, Illinois, New York and New Jersey "are not through their foreclosure crisis yet" because they are judicial foreclosure states.  This means that home prices in these states cannot have bottomed out yet.  These are the states in which there is a looming, huge glut of homes that will eventually hit the market when the banks either holding or servicing the mortgages get tired of getting no income on them and act to start foreclosure.  At some point, these homes will reach the market, and the increased supply will reduce prices. There is no way around that fact.

The news gets worse.  As real estate analyst Keith Jurow pointed out to me -- and this further bolsters his contentions of an approaching real estate price plunge in much of the United States (including possibly a 50% drop in the New York metropolitan area) -- the percentage of homes whose first liens (the primary mortgages) are in serious default (meaning delinquent 90+ days) or foreclosure has increased in the last year (comparing March 2012 defaults against March 2011 defaults) in most United States markets.  Just look at this March 2012 map and see the large swaths of light brown in the entire New York metropolitan area including New Jersey, New England including most of Massachusetts, Connecticut and Rhode Island, the entire Chicago metropolitan areas and much of northern Ohio.  Then see the dark brown -- the very worst -- for most of Florida.

While commentators like Kolko try to spin numbers to support the thesis of a housing price recovery, the unavoidable fact is that in major markets, the supply of homes has been kept artificially low because banks have refused to foreclose. If anything, this has artifically supported prices...and pushed the decline into the future, thus pushing a genuine lasting recovery well into the future.  However, there are too many prospective buyers who either fear or anticipate continued price declines. Buyers who will buy today will likely price in an anticipated future price drop, and this depresses prices and prevents a recovery.

This article is the latest by Eric Dixon in an ongoing series of reports following the housing market with a particular emphasis on the Northeast. 

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