Sandy challenges property recovery in Northeast
The U.S. real estate recovery that's gained strength this year faces a setback from flooding and property damage inflicted by Hurricane Sandy, the biggest tropical gale to hit the Atlantic seaboard.
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, N.J., 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, closed trading and lashed the area with gales, rain and even snow. Losses may total as much as $20 billion, with $5 billion to $10 billion of that insured, according to Eqecat., an Oakland, Calif.-based provider of catastrophic risk models.
Almost $88 billion of homes in seven states are at risk of damage, according to a report by CoreLogic, a mortgage software and data firm in Irvine, Calif. New York has $35.1 billion of property in harm's way, New Jersey has $22.6 billion, Virginia has $11.3 billion, and Massachusetts has $7.8 billion. Maryland, Delaware and Pennsylvania have a combined $11 billion of property at risk, CoreLogic said.
A fire tore through more than 50 homes Tuesday 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 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 Monday in a note to clients. Debt on New Jersey properties accounts for 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 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 cancellations of U.S. stock trading and 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. Median sales prices rose to $188,800, up 11 percent over a year earlier, according to the National Association of Realtors. Home sales reached an annualized pace of 4.75 million in September, 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 is lower than that of the 1938 hurricane that devastated homes in New York and New England. Flooding has been 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.
Fannie Mae, Freddie Mac, Bank of America 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, N.C., 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.
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, 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 are in Sandy's path, in the counties of Burlington, Camden, Gloucester, Salem, Ocean, Atlantic, Cape May, Cumberland, RealtyTrac Vice President Daren Blomquist said in a telephone interview.
More than 50,000 New York foreclosures are 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 will 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.
"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, had lost electricity Monday 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."