Housing Hardship Index: New York moves into top spot among most severely affected state economies

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New York, the early epicenter of deaths from COVID-19, was the state affected most dramatically by the coronavirus recession in July, according to the latest Bankrate Housing Hardship Index.

New York absorbed a one-two punch from double-digit unemployment and a high rate of  mortgage delinquency. As the fast-changing coronavirus contagion evolves, the pandemic’s economic effects are shifting. New Jersey was the hardest-hit state in June, then moved into third place in July.

Nevada, the hardest-hit state in April and May, fell to third place in June and then rose to second place for our rankings this month. Hawaii, another tourism-dependent state, fell out of the top five.

Our metric sums mortgage delinquencies and unemployment to show which states are enduring the most extreme slowdowns during the pandemic. Mississippi and Massachusetts rounded out the top five.

“States experiencing high unemployment will see mortgage delinquencies surge if unemployment remains elevated as forbearance periods expire,” says Greg McBride, CFA, Bankrate chief financial analyst. “This year may see the worst for unemployment, but 2021 will likely bring the worst for mortgage delinquencies and defaults.”

For now, foreclosures remain rare. The Coronavirus Aid, Relief and Security Act requires mortgage giants Fannie Mae and Freddie Mac, the Federal Housing Administration and the Department of Veterans Affairs to let borrowers miss up to a year of payments without penalty. Those mortgage relief initiatives are mandated by federal law, but lenders also have voluntarily extended forbearance to more than a million borrowers with jumbo loans and other types of mortgages not backed by the federal government.

Real estate markets are local, as the saying goes, and the Housing Hardship Index indicates which regions may face protracted recoveries, and which areas might emerge comparatively unscathed.

Some states — especially those in the Rockies and upper Great Plains — have weathered the coronavirus storm well so far. Idaho had the best showing in the Housing Hardship Index for June.

 The 5 hardest-hit states from coronavirus

The fallout for real estate and labor markets is severe in some corners of the country. These five states fared the worst in July:

  1. New York. Its unemployment rate was 15.9 percent in July, up from 15.7 percent in June and 14.5 percent in May. New York’s delinquency rate fell to 8.38 percent, down from 9.65 percent in June. The state’s overall reading was 24.28.
  2. Nevada. As casinos reopened, Nevada’s jobless rate fell to 14 percent in July, down from 15 percent in June and a whopping 25.3 percent in May. The Silver State’s mortgage delinquency rate fell to 8.77 percent in July, down from 9.71 percent in June and 9.99 percent in May.
  3. New Jersey. Hammered by the coronavirus, New Jersey saw its delinquency rate dip to 8.81 percent in July, down from 10.11 percent in June, according to Black Knight. Garden State unemployment fell to 13.8 percent in July, down from 16.6 percent in June.
  4. Mississippi. A new entrant to the top 5, Mississippi’s mortgage delinquency rate was 11.36 percent in July. Unemployment was 10.8 percent.
  5. Massachusetts. Massachusetts had the worst unemployment rate in the nation in July, repeating June’s reading. However, its mortgage delinquency rate was a comparatively low 5.81 percent. The state had reported nearly 9,000 deaths from COVID-19 as of Aug. 25. Unemployment fell to 16.1 percent in July from 17.4 percent in June.

For the nation’s third-largest state economy, a sharp shock

The Housing Hardship Index may show how states’ real estate markets could fare after the coronavirus recession. It’s inspired by the Misery Index, a tried-and-true gauge of prosperity that sums inflation and employment. By that measure, the “stagflation” days of the late 1970s and early 1980s were especially difficult.

Inflation isn’t a factor these days, so the Housing Hardship Index tracks two other statistics: mortgage delinquency rates reported by data firm Black Knight, and jobless numbers released by the U.S. Labor Department.

New York City had reported nearly 24,000 fatalities from coronavirus as of Aug. 25, according to the Centers for Disease Control. While the city has slowed the spread of COVID-19 in recent months, the New York economy remains wounded by the coronavirus recession. New York’s $1.7 trillion economy is the nation’s third largest, trailing only California and Texas.

Manhattan home sales have slowed dramatically, but summer has brought a jolt of activity in the city’s other boroughs and in the suburbs, says appraiser Jonathan Miller, president of Miller Samuel Inc. in New York City.

“If you look at the suburban markets around New York, they’re showing a lot of strength,” Miller says.

For now, Miller says, the recession is affecting renters more severely than homeowners, so he foresees a wave of evictions rather than a flood of foreclosures.

New Jersey also has been hit hard by COVID-19. The Garden State had reported nearly 16,000 deaths as of Aug. 25.

Before the pandemic, 400,000 New Jersey residents commuted to New York City for work. That made New Jersey the unofficial “sixth borough” of New York City, says Rutgers University professor James W. Hughes.

“New York City has been the regional economic locomotive for New Jersey,” Hughes says. “The great bulk of New Jersey’s economy is in the 11 counties in Central New Jersey and Northern New Jersey that have linkages to New York City. Whatever happens in New York feeds back into New Jersey.”

The pandemic arrived in a New Jersey housing market that never fully rebounded from the Great Recession, in part because the Garden State’s suburban-style living fell out of favor.

“New Jersey has not been designated millennial cool,” Hughes says. “If they can afford it, they’d prefer to live in Brooklyn or Queens. We don’t have those super-desirable urban areas.”

Nevada, for its part, is still struggling but has improved after experiencing a near-shutdown of its economy, which is driven by casinos, conventions and concerts — all victims of the coronavirus. Despite the sudden slowdown, Nevada’s housing market has held up well, says Bob Hamrick, chairman and chief executive of Coldwell Banker Premier Realty in Las Vegas.

“Our entire state is a hospitality state. Our convention business has come to an absolute halt,” Hamrick says. “Against that backdrop, prices have continued to rise.”

Las Vegas has a tight supply of homes for sale, and many homeowners have built equity in their homes during the past decade.

“The perception that there’s going to be a lot of foreclosures is entirely unfounded, because you don’t foreclose on equity. You foreclose on debt,” Hamrick says.

The 5 least-affected states

On the other hand, some states are doing better. Those least affected by the slowdown:

  • 47. Nebraska. Its unemployment was 4.8 percent in July, and 6.17 percent of mortgages are late.
  • 48. South Dakota. The unemployment rate was 6.3 percent in July, and the delinquency rate was 4.51 percent.
  • 49. Montana. Its unemployment rate of 6.4 percent was well below the national average, as was the delinquency rate of 4.32 percent.
  • 50. Utah. Unemployment was 4.5 percent, lowest in the nation, and just 4.97 percent of mortgages were delinquent
  • 51. Idaho. The mortgage delinquency share is 3.71 percent, and the jobless rate is 5 percent, making Idaho the state least affected by the recession in July.

Here’s how the rankings played out in June:

Methodology

To calculate the Housing Hardship Index, Bankrate used state-by-state mortgage delinquency data from Black Knight Inc., a prominent data firm, and state unemployment rates from the U.S. Department of Labor.

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