As the fast-changing coronavirus contagion evolves, the pandemic’s economic effects are shifting. New Jersey and New York were the two hardest-hit state economies, according to the Bankrate Housing Hardship Index for June.
New Jersey and New York, early epicenters of COVID-19 deaths, supplant Nevada and Hawaii atop our rankings this month. Those tourism-dependent states ranked first and second on our index for April in May. For June, Nevada fell to third place, Hawaii to fifth.
Our metric sums mortgage delinquencies and unemployment to show which states are enduring the most extreme slowdowns during the pandemic. Massachusetts moved into the top five as it struggled with a spike in layoffs in June.
“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 June:
1. New Jersey. Hammered by the coronavirus, New Jersey saw its delinquency rate dip to 10.11% in June from 10.49% in May, according to Black Knight. However, Garden State unemployment rose to 16.6% in June, up from 15.2% in May. The state’s overall reading is 26.71.
2. New York. Its unemployment rate was 15.7% in June, up from 14.5% in May. New York’s delinquency rate was 9.65 percent.
3. Nevada. As casinos reopened, Nevada’s jobless rate plunged to 15% in June, down from 25.3% in May. The Silver State’s mortgage delinquency rate fell to 9.71% in June, from 9.99% in May.
4. Massachusetts. A new entrant to the top 5, Massachusetts had the worst unemployment rate in the nation in June. However, its mortgage delinquency rate was just 6.37 percent. The state had reported more than 8,200 deaths from COVID-19 as of July 22. Unemployment rose to 17.4% in June from 16.3% in May.
5. Hawaii. Another tourism-dependent state, Hawaii saw improvement. Its mortgage delinquency rate fell to 9.08 percent, compared with 9.30% in May. Unemployment fell to 13.9 percent, a sharp drop from 22.6% in May.
New York City shutdown affects New Jersey
The Housing Hardship Index may give some indication 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.
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.”
New Jersey and New York have led the nation in COVID-19 deaths. New York City had reported more than 23,000 fatalities as of July 22, and New Jersey had more than 15,000 deaths, according to the Centers for Disease Control.
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. Montana. Its unemployment rate of 7.1% was well below the national average, as was the delinquency rate of 4.88 percent.
48. North Dakota. The unemployment rate fell to 6.1% in June, down from 9.1% in May, and the delinquency rate was 5.02 percent.
49. Utah. Unemployment was 5.1 percent, and just 5.51% of mortgages were delinquent
50. Kentucky. Its unemployment of 4.3% was lowest in the nation, and just 5.64% of mortgages are late.
Idaho. The mortgage delinquency share is 4.26 percent, and the jobless rate is 5.6 percent, making Idaho the state least affected by the recession 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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