U.S. Real Estate Recovery Challenged by Hurricane Sandy
The storm battered homes in Eastern coastal states that account for about one out of every five U.S. real estate sales and threatened inland areas with flooding and blackouts. Lenders put transactions on hold and companies like Coastline Realty in Cape May, New Jersey, pulled in their for-sale signs to prevent the wind from turning them into projectiles.
“We’ll definitely see lower numbers in new sales and new applications,” said David Stevens, president of the Mortgage Bankers Association. “We do expect to see lenders put a freeze on properties across the northeast on the shoreline until they can be inspected and assessed for damages.”
Sandy, about 1,000 miles wide, prompted warnings of life-threatening storm surges from Virginia to Massachusetts, emptied the streets of the nation’s largest cities, paralyzed mass-transit systems and lashed the area with gales, rain and even snow. U.S. airlines grounded 9,500 flights and U.S. stock trading is closed through today in the first back-to-back shutdowns for weather since 1888. Losses may total as much as $20 billion, with $5 billion to $10 billion of that insured, according to Eqecat Inc., an Oakland, California-based provider of catastrophic risk models.
Almost $88 billion of homes in seven states were at risk of damage, according to a report by CoreLogic Inc., a mortgage software and data firm in Irvine, California. New York had $35.1 billion of property in harm’s way, New Jersey had $22.6 billion, Virginia had $11.3 billion, and Massachusetts had $7.8 billion. Maryland, Delaware and Pennsylvania had a combined $11 billion of property at risk, CoreLogic said.
A fire tore through more than 50 homes today in a Queens beach community that suffered heavy flooding, the New York Times reported. On 57th Street in Manhattan, a crane on a 90-story residential building under construction partially collapsed and was dangling over the street. The storm has accounted for 16 deaths, according to the Associated Press.
The storm may also adversely affect commercial properties and securities linked to their debt. New York accounts for 13.2 percent of property loans contained in commercial-mortgage bonds, according to Standard & Poor’s. Loans in Virginia make up 4 percent of deals, while mortgages in Pennsylvania account for 3.4 percent, S&P said yesterday in a note to clients. Debt on New Jersey properties are 3.1 percent of outstanding bonds.
“Given the magnitude of the storm there will be some impact on performance but more so on smaller properties, to the extent there is structural damage to the property and they require significant capital expenditures,” said Deutsche Bank AG debt analyst Harris Trifon. It won’t lead to any significant increase in delinquencies, he said, because most properties should have adequate insurance.
Still, the storm, which forced the cancellation of fixed-income markets, means Wall Street also had to put on hold about $3 billion of commercial mortgage bond sales that included loans to shopping malls, hotels and office buildings.
The U.S. housing market has been recovering this year. The S&P/Case-Shiller index of property values in 20 cities rose 2 percent in August from a year earlier, the biggest gain since July 2010, the group said today in New York. The median forecast of 25 economists in a Bloomberg survey projected a 1.9 percent increase.
The U.S. median sales prices in September rose to $183,900, up 11 percent from a year earlier, according to the National Association of Realtors. Home sales that month reached an annualized pace of 4.75 million, up 11 percent from a year ago. Pending home sales edged up in September for the 17th consecutive month on a year-over-year basis.
The storm’s central barometric pressure was lower than that of the 1938 hurricane that devastated homes in New York and New England. Flooding from Sandy was reported along the coast from Martha’s Vineyard in Massachusetts through New Jersey. The storm submerged Plymouth Rock, the landmark in Massachusetts traditionally represented as the place where Pilgrims first stepped onshore in the New World in 1620.
“I have never seen a storm this large in regards to wind flow,” said Rob Carolan, a meteorologist at Hometown Forecast Services Inc. in Nashua, New Hampshire. “So many bad things had to come together all at once. It is going to make the ‘Perfect Storm’ look small. It’s remarkable what an impact this is going to have.”
The “Perfect Storm” struck the U.S. East Coast in October 1991. It later became the subject of a book by Sebastian Junger and a movie starring George Clooney.
Fannie Mae, Freddie Mac, Bank of America Corp. and Wells Fargo & Co. told property managers to make sure their foreclosed homes were secured, David Benham, co-owner of Benham Real Estate Group, a property management company based in Charlotte, North Carolina, said in a telephone interview.
“They told us to do what we can in terms of the building but keep ourselves safe,” said Benham, whose company manages 2,000 bank-owned homes nationwide. Their assignments start with boarding up windows and doors, he said. They expect to complete field reports, including photos, within five days showing damage from the weather, he said.
Freddie Mac said today in a statement that it has authorized servicers to suspend foreclosure proceedings for up to 12 months on mortgages it owns or guarantees in states affected by the storm. Also, the McLean, Virginia-based company said it will permit some on-time borrowers to defer mortgage payments for up to a year, will waive the assessment of late fees against borrowers with storm-damaged homes and will not report delinquencies caused by the disaster to credit bureaus.
Washington-based Fannie Mae issued a statement today urging its servicers to grant borrowers affected by the disaster a 90-day period of deferred or reduced mortgage payments under its existing disaster-relief guidelines.
Over the long run, the storm could worsen blight on properties in the foreclosure pipeline where owners don’t have the resources -- or the intention -- to maintain the property and the loan servicers don’t have full legal responsibility for maintaining the property, Chris Whalen, senior managing director at Tangent Capital Partners LLC, said during a telephone interview from New York.
There’s a “floating inventory” of abandoned or delinquent properties not available for sale that has been growing in states like New York and New Jersey, where the foreclosure process takes longest, Whalen said.
About 20,000 New Jersey properties facing foreclosure or already repossessed by banks were in Sandy’s path in the counties of Burlington, Camden, Gloucester, Salem, Ocean, Atlantic, Cape May, Cumberland, Daren Blomquist, RealtyTrac vice president, said in a telephone interview.
More than 50,000 New York foreclosures were threatened in New York City’s five boroughs and the counties of Ulster, Dutchess, Westchester, Suffolk, Nassau, Rockland, Putnam, Orange, Greene, Columbia, he said.
In Connecticut 3,055 homes in foreclosure could be affected in New London, New Haven, Middlesex and Fairfield counties, Blomquist said.
The storm closed many courthouses where lenders pursue foreclosures, another wrench in a process that takes an average of 1,072 days to complete in New York, the longest process among U.S. states. Foreclosures take an average of 931 days in New Jersey, second-longest, and 661 days in Connecticut, the sixth longest, according to RealtyTrac.
At the current pace of foreclosures, the pipeline of homes with seriously-delinquent mortgages would take 495 months --more than 41 years -- to work through in New York and 425 months in New Jersey, the longest of any states, according to Lender Processing Services Inc. (LPS)
“The magnitude of the damage is not yet known, but none of this can be good for the prospect of getting the foreclosure crisis behind us,” said David Dunn, an attorney with Hogan Lovells in New York.
The Hamptons, on the eastern tip of New York’s Long Island, lost electricity yesterday afternoon, according to Judi Desiderio, president of Town and Country Real Estate in East Hampton. Owners and buyers who plan to live there during hurricane season should factor in the approximately $50,000 cost of having a generator as part of the price of owning property, she said.
Another necessity, she said, is “a bunch of friends who live nearby so you can have a hurricane party.”
To contact the reporters on this story: Kathleen M. Howley in Boston at firstname.lastname@example.org; John Gittelsohn in Los Angeles at email@example.com; Heather Perlberg in New York at firstname.lastname@example.org.