In February, the Federal Reserve Bank of New York’s Liberty Street Economics blog published five posts on housing and homeownership. I won’t discuss the findings from every post, nor write five in response, but I will hit on the major points that might be salient to New York bankruptcy. In its first post, the Fed’s researchers asked how resilient the U.S. housing market is. They answered by conducting stress tests on housing debt, much like the same tests performed on financial institutions during the Great Recession to determine if they were solvent.
The researchers investigated both how the distribution of housing leverage (combined loan-to-value relationships) would change and how much mortgage delinquency would increase if house prices fell. If prices fell to their levels at two years ago, the leverage distribution and 90-day-plus mortgage delinquency rates would be stable. Take prices down to where they were four years ago, and things become worrisome: One-fourth of mortgages reach loan-to-value ratios over 100 percent, and delinquency rates in five states exceeds 10 percent. If prices fell to the extent they did from the peak of the housing bubble to the trough, more than 40 percent of mortgages would have loan-to-value ratios over 100 percent, and the delinquency rate would grow above 10 percent nationwide.
As with all analyses of national trends, it’s crucial to separate out New York as best as one can. In the worst-case-scenario stress test, the mortgage-delinquency rate only rises to 6.2 percent, indicating that the state’s real-estate market is fairly sound. What it would be in New York City and the surrounding area is a different issue, so it’s something to be concerned about. Whether home prices would fall by so much is another question entirely, and because there doesn’t appear to be a reason why they would, it isn’t a likely outcome.
The other four posts illuminate the homeownership rate and changes in the demographics of homeowners. Here, the trends are more problematic for the long term, but they aren’t an acute problem that may force debtors into bankruptcy. In general home equity is shifting toward older and more creditworthy households, which reduces the extent to which households that would like to borrow money to finance consumption (or start businesses) can do so. The trend also widens wealth inequality in the country.
More importantly, the homeownership rate, the percent of households that live in owner-occupied housing, has fallen to its lowest level since 1994, about 63 percent. At the same time the percent of homeowners with positive equity in their homes is converging with the homeownership rate, indicating strength in the housing sector. The NY Fed took some efforts to disentangle the factors behind the changes in homeownership rates, mainly the aging population. Homeowners tend to be older now than in 1994 (although surprisingly the 16-24 cohort is doing much better than others and its own past), and middle-aged households tend to be owners much less than before. The researchers hypothesize that reduced real incomes and a preference for renting is depressing homeownership among prime-age Americans. Oddly, they don’t cite past NY Fed research finding large debts causing a bottleneck in homeownership.
From the NY Fed’s analyses, it appears that New York homeowners are doing okay. However, in other research, the NY Fed has found that New York City homeowners are struggling more than the national average. If you are a homeowner and finding it hard to make mortgage payments, then discussing your situation with an experienced New York bankruptcy lawyer can help you assess your options.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy attorney Brooklyn NY Bruce Weiner for a free initial consultation.