When driving through the neighborhoods in New Jersey, one might notice an unsettling trend. Foreclosure signs dot lawns across the entire state. In fact, 39%** of New Jersey residents say there are many foreclosures in their neighborhood, having a negative impact on their home values.
New Jersey leaders have talked about the state’s foreclosure crisis for the past few years, and a recently released study found that the foreclosure crisis is continuing into 2020. The research study, released in January, was performed by an independent market research company and sponsored by New Jersey-based White Glove Moving & Storage.
New Jersey has had some of the highest foreclosure rates in the country for several years. One in every 1,223 homes is under foreclosure. In another study observing the number of foreclosures across the country, New Jersey was found to have the highest concentration of foreclosures in the U.S. Cumberland, Gloucester, Sussex, Camden, and Warren counties had some of the highest foreclosure rates when compared to other counties in the state and the country, according to ATTOM Data Solutions’ November 2019 US Foreclosure Activity Analysis.
ATTOM Data Solutions found, however, that the pace of foreclosures is slowing down. When looking at the nation as a whole, quarter three of 2019 saw a 19% decrease in foreclosure activity from the previous year. For New Jersey residents, the slowing of foreclosures cannot happen soon enough.
Lingering Effects of the 2008 Recession
The foreclosure crisis is, for the most part, a remnant of the Housing Crisis and Great Recession of 2008. In 2004, New Jersey home builders were constructing large homes with big yards. Over the following couple of years, people purchased these homes, thinking that the home would be a good investment, says Pete S., a longtime Realtor with The PLJ Group in northern New Jersey. Unfortunately, people who purchased a home in 2005 and 2006 ended up overpaying by a large sum when the market crashed in 2008.
Pete says many people lost their life savings during the recession. Now, 12 years later, they owe more on their houses than what they could sell them for. Sellers know that they could sell their houses for more if they had the funds to invest in upgrades. But, the high cost of raw materials and construction is too prohibitive.
“They aren’t going to sell it, so they walk out,” Pete says. “They ask themselves, ‘Why am I paying the mortgage company when the asset is paying me way less than I owe?’”
Home prices have increased across the country, but the majority of New Jersey residents say their home values have not. Less than half (47%) of residents polled in the White Glove survey saw an increase in their home values over the past five years**.
Pete says the high cost of living in New Jersey does not help the situation. New Jersey taxes are high, especially residential taxes, and the costs make it difficult for people to put money into maintaining the home. Buyers on the market are not interested in spending money on a house that needs a lot of work, so any older houses that haven’t been properly maintained are simply passed by. Those who are upside down in their homes end up filing for a foreclosure.
Pete says buyer habits have also changed, putting many sellers in tough positions. He says many of the younger home buyers want small, affordable houses with low-maintenance yards. Entry-level houses that are around $400,000 and $500,000 are going fast, but large houses with price tags in the millions are not.
Efforts to Repair the Foreclosure Crisis
New Jersey leaders have said that one of the reasons the state has had such a hard time climbing out of the Housing Crisis is because the state’s foreclosure process goes through the lengthy and complicated court system. They say a court-based system makes it more difficult for housing markets to adjust to a drop in property values.
Gov. Phil Murphy attempted to address this problem by introducing a reform package to amend the foreclosure process last year. These changes, as well as a good economy, seem to be effective. Foreclosure starts in New Jersey decreased by 21% in 2019.
But, despite the decreasing foreclosure rate, the lack of good financial opportunities continues to push people out of their New Jersey homes. Research from the White Glove Moving study found that 75%** of NJ residents believe they will have better financial opportunities outside of the state. They quote job opportunities and the expensive cost of living** as the top reasons for wanting to move. An alarming 55%** of New Jersey residents say they are interested in moving out of the state. The top states they are fleeing for are Florida, North Carolina, Pennsylvania, Delaware, and Texas.**
New residents are even more likely to want out of the state. According to the survey, 57%** of New Jersey residents that have lived in the state for less than five years already want to move out. Residents with children are 22%** more likely to want to move out of the state than those without.
Pete says that there are jobs in New Jersey, but the pay is not sufficient when compared to the cost of living in New Jersey.
“New Jersey has tons of jobs, but they are not going to pay the mortgage” he says. “The few people that can afford [New Jersey] are saying, ‘Why not buy a new house and live in a place without the tax burden?’ That’s the situation we are in.”
Gov. Murphy addressed the lack of financial opportunities in a 2018 speech.
“Where we once prided ourselves in a vibrant and growing middle class, we now have a gaping void too wide for countless working families to bridge to get into the middle class,” Murphy said. “This is not New Jersey. Not by a long shot.”
Wage growth has been sluggish in the state. In fact, New Jersey ranked 49th in the nation at the time of Murphy’s speech. Payroll growth continues to be slow, and businesses are less optimistic about New Jersey’s economic growth in 2020 because of the state’s high cost of living.
New Jersey has seen many company closures in the past few years, which has also contributed to the lack of economic opportunities and steady foreclosure rates. The Toys R Us headquarters and distribution center in NJ closed last year. The state has had some of the highest job loss rates in the country, especially in the financial sector.
But New Jersey leaders and residents remain hopeful that things will turn around soon. According to the U.S. Bureau of Economic Analysis, New Jersey’s gross domestic product grew the most when compared to other northeastern states. In the third quarter of 2019, New Jersey had an increase rate of 2.3%, eclipsing the country’s average of 2.1%.
Pete, like all Realtors, is unsure how New Jersey’s real estate landscape will look in the future. But when he sees the state’s ski resorts and beaches, rural towns and metro areas, he can’t help but admit that despite its flaws and challenges, it’s still a great place to live.