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New York City Housing Markets on the Verge of Plunging


New York is the largest city and the most misunderstood housing market in the nation. Here, what you need to know if you are a potential buyer or seller.


Contrary to a widespread view, these piggy-back second mortgages went mainly to middle and upper income buyers. The Furman Center report showed that while only 3% of all borrowers in 2006 with incomes under $50,000 obtained a piggy-back second lien, more than 20% of all buyers with incomes over $50,000 used a piggy-back loan to finance the property.

An important report published in October 2007 by the Wall Street Journal examined 130 million loans originated over the previous 10 years. It found that origination of high interest rate second liens soared in 2006, especially among those who earned in excess of $200,000. Many were subprime loans because the borrower was too stretched to qualify for a prime loan.

Another dangerous development in 2006 In NYC was the large number of refinancing originations. According to the Furman Center report, 40% of all loans originated that year were refinancings. We know from nationwide figures that many were what became known as "cash-out refis." This is where the borrower took out a larger first mortgage to pull cash out of the rising equity in the house. That would come back to haunt these owners once the market turned down.

The Mortgage Delinquency Crisis Begins to Unfold

Tens of thousands of NYC borrowers were stretched out to the max during the bubble years of 2004-2006 with onerous mortgage payments. Since many had put down no more than 5-10%, any downturn in prices was certain to cause severe problems. Compounding the stress was the fact that countless speculators had purchased one or more properties with negative cash flow hoping that rising prices would bail them out.

Once prices leveled out and then started declining, speculators were the first to bail out. Roughly 60% of the 15,000 foreclosure filings in NYC in 2007 were on 2-4 family homes purchased by investors/speculators.

When my first article about Queens appeared in June 2010, I published a chart showing that the delinquency rate for Queens borrowers more than 60 days late in their mortgage payment had climbed from 3.5% at the end of 2007 to 6.1% a year later. These statistics came from Trans Union -- the credit reporting firm – and its massive database of credit records. What startled me was that this rate had soared to 11.2% by the first quarter of 2010.

I researched this further and found that for the boroughs of Brooklyn and the Bronx, the rates were almost as bad. By the time I posted a follow-up article on Queens in October 2010, it was clear that the servicing banks had not been foreclosing on these seriously delinquent homeowners since early 2009. Then in May 2011, I published an article on Minyanville (Why NYC Home Prices Are Headed for Collapse) which expanded the discussion to all of NYC. In it, I warned that this huge shadow inventory of seriously delinquent properties would undermine home prices throughout the city.

Finally, in the last week of June 2011, the Federal Reserve Bank of NY (FRBNY) released a massive report on the state of serious mortgage delinquencies for all five boroughs.

Editor's Note: To find out how you can access Keith's complete analysis of the shocking details of this Federal Reserve Bank of NY report about all five boroughs of NYC and the dangers the "shadow inventory" poses for home prices, see MVP Housing Market Report. You can also download reports on other regions of the US by clicking here.

No positions in stocks mentioned.

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