NEW YORK (Reuters) - The regional housing market should see only a small impact from the fallout from the massive storm that hit the U.S. Northeast last month, though delinquencies in hard-hit areas could rise, the New York Federal Reserve said on Thursday.
About 300,000 New York homes were damaged or destroyed by Superstorm Sandy, while about 70,000 were hit in New Jersey, the New York Fed estimated. Still, that’s a relatively small slice of each state’s real estate market, accounting for about 4 percent and 2 percent of housing stock, respectively.
“Chances are (the impact) is going to be relatively small,” Jaison Abel, senior economist with the Fed’s research and statistics group, said during a press briefing.
A temporary dip in home prices and sales activity is usually seen following severe storms before the market rebounds, the Fed said. If enough homes are destroyed, prices may rise immediately as there are fewer homes to meet demand.
However, there could be an increase in delinquencies in some areas, particularly for homeowners that weren’t adequately insured or were upside down on their loans - their homes worth less than their mortgages.
“If a house is suddenly severely damaged or destroyed ... that can really start to alter the decision by the household in terms of what they should decide to do,” said Joseph Tracy, the New York Fed’s executive vice president.
“So we may see some localized pressures on delinquencies.”
New York and New Jersey are already plagued by a large backlog of foreclosures that have yet to be processed, an issue flagged by the Fed as a significant challenge to this year’s stabilization in the housing sector.
How long it takes to foreclose on a home has particularly increased in states - including New York and New Jersey - that process cases through the court system.
Sandy made landfall in New Jersey on October 29, wreaking havoc in the Northeastern United States and killing at least 121 people.
New York Fed President William Dudley said in a speech earlier in the day that the storm would likely shave 0.25 to 0.5 of a percentage point from economic growth in the fourth quarter.
Reporting by Leah Schnurr; Editing by Phil Berlowitz