The Ripple Effect of Foreclosures on Neighborhoods and Beyond: Part B

by Owusu Kizito, MBA/EA

In “weak market” cities, even when some neighborhoods were reviving, overall housing demand remained weak and poverty levels were high. Foreclosures have hit these already-vulnerable regions hard. However, stronger market cities are also suffering. Take New York City for example, although somewhat cushioned by its high rate of renters and its still strong housing market, New York is projected to lose billions in home value, mostly in outer borough neighborhoods home to African-American and Hispanic homeowners. In those neighborhoods, squatters and drug dealers are moving into empty houses. Speculators turned landlords are illegally carving up single-family homes into apartments for rent. In neighborhoods like Jamaica, Queens, some longtime homeowners who were pushed into predatory loans have now been forced to walk away from their homes. One thing that defines this mortgage crisis is that there are many different stories happening at once, from Cleveland to New York and beyond. There are places like Southern California and Florida where overheated markets led to extensive and unsustainable speculation. There are borrowers everywhere who overreached, believing prices would keep rising. This article will focus on the effects of foreclosure in strong-market regions.

Strong-Market Regions
In strong-market cities, housing prices have fallen, but there are still buyers. However, they are beginning to face the same serious problems as weak-market cities. At first glance, the effects of the foreclosure crisis on stronger market cities are less dramatic. But there are real and troubling consequences in those cities there as well. In a strong market, distressed borrowers can often sell their homes before foreclosure. Or, at least, the homes sell at auction, leading to lower numbers of bank-owned properties and far lower rates of abandoned properties. However, absentee investors often buy these distressed homes. These buyers typically ignore maintenance needs and turn the homes into rental properties, sometimes illegally converting one- or two- family houses into multiple units. And even though demand still exists for these homes, speculators will often bid higher than legitimate homebuyers in hopes they can milk the properties for as much profit as possible. The credit crunch also blocks qualified moderate-income families who want to buy, even though the housing price drop has brought homes into their price range. Despite the differences, strong market cities are beginning to face trends that have crippled their weaker sisters. Recent news reports have portrayed areas of Queens as quite similar to Cleveland or Detroit: bank-owned properties not selling; squatters and drug dealers moving it; arson and copper stripping.
When a home is transferred from a family with roots in a neighborhood to an absentee owner, it’s a big loss for a community. The neighborhoods that are the hardest hit in strong market cities are ones that had recently improved. Over the past couple decades, time, energy, and money went into improving a number of New York’s neighborhoods that now have the highest foreclosure rates, such as Bedford Stuyvesant, East New York, and Jamaica, Queens. The response strategies differ in a strong market area as well. Officials have a better chance of keeping homes in good shape. Authorities in the worst-hit areas of Southern California, such as Stockton and Chula Vista, are actively pursuing owners of vacant property who don’t do maintenance. In a community where you’ve got a fighting chance of demand picking up again, code enforcement can make the difference between the foreclosure problem being a hiccup or a hemorrhage. In a weak-market area, code enforcement won’t make a difference, because lenders don’t care if they lose their properties. Foreclosure and abandonment can quickly trigger a cycle of plummeting tax revenue and skyrocketing costs for cities, challenging efforts to turn the tide.

Reference:
Communities at Risk: How the Foreclosure Crisis Is Damaging Urban Areas and What Is Being Done About It

Mr. Owusu Kizito is the President and CEO of Investigroup Companies. He is also a tax expert. Heholds an MBA from Hawaii Pacific University and postgraduate law certifications from Harvard University. Mr. Kizito can be reached directly on (908) 977-7320 or email him at okizito
@investigroup.org. Follow him on twitter for updates @okizito1.

Posted by admin on Jan 23 2014. Filed under Community News. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry