The Northeast's path to recovery faces other headwinds. Of the nine geographical divisions tracked by the Bureau of Labor Statistics, the mid-Atlantic area, which includes New Jersey, New York and Pennsylvania, is the only region where the jobless rate didn't fall in July from a year earlier. Unemployment in the mid-Atlantic increased to 8.9 percent from 8.5 percent, a change within the margin of error. The U.S. rate was 8.1 percent in August, down 0.2 percentage point from July.
New Jersey's unemployment rate jumped to 9.8 percent in July, with declines in manufacturing, construction and professional and business service jobs, the state's Labor Department said.
'Domino Effect'
The weak economy is hitting inner cities and more-affluent communities alike, said Mark Cherry, a Cherry Hill, New Jersey- based attorney who represents delinquent borrowers. Wall Street cuts are being felt in the New Jersey suburbs, resulting in a "domino effect" on luxury home sellers, high-end car dealerships and restaurants, he said.
"You could drive down a street that looks perfectly normal, with minimal for-sale signs, and not realize that 20 percent of those homes are in foreclosure," Cherry said. "There's no big flag that says that a lot of these people are in trouble."
Short sales, in which lenders let borrowers sell for less than the balance of their mortgages, now account for a third of Eileen Meehan's business. A year ago, it was only 10 percent, said the Realtor with Re/Max Properties in Saddle River, one of the wealthiest towns in the New York suburbs of Bergen County, New Jersey.
Free Living
Some sellers have backed out of short sales because they don't want to pull their children out of school or aren't in a rush to move because they're living in a home for free, she said. Many others, including one client who fell behind on his mortgage after pulling equity from his property for years to keep a title business afloat, would rather sell and move on with their lives, she said.
The delinquent homeowners who remain in the shadows are keeping potential homebuyers on the sidelines amid concern that prices will fall more, Meehan said.
"It has given buyers a wait-and-see attitude," she said.
Higher-income markets, such as New Jersey's Morris and Bergen counties, will probably avoid the worst pain because there's a shortage of homes and when distressed properties are listed, "the housing market will swallow them whole," according to Jeffrey G. Otteau, president of Otteau Valuation Group Inc., in East Brunswick, New Jersey.