It’s been a rather quiet weekend on the New Jersey Bubble news front. I’ve had a few things on the back-burner, so now seems like a good time to pull them out. This first one is on the fundamentals that govern home prices.. Let’s take a look.
Historically, home values have tracked three different fundamentals very closely, the relationship is well known, and the reasons behind them are sound. Those three fundamentals are local wages, local rents, and inflation. Wages and rents are the obvious fundamentals, so let’s take a quick look at those first.
Local wages and rents are tightly intertwined. If wages rise, it’s likely a sign that rents will rise shortly there after. Likewise, increased rental prices put wage pressures on local employers (I personally think this scenario is all but impossible in many areas, it would require that the entire local rental stock be controlled by a monopoly). But both typically move together rather tightly. Over the past few years, wage increases have been minimal, as have rental increases.
Lets take a look at median wage increases in New Jersey:
1996-1997 $56,506
1997-1998 $57,816
1998-1999 $58,092
1999-2000 $57,438
2000-2001 $56,895
2001-2002 $57,441
2002-2003 $58,313
2003-2004 $57,007
As you can see, median wages have been relatively flat. So lets take a look at how median rents have moved.
Median Rent For NJ
2001 $625
2000 $618
2002 $638
2003 $670
2004 $685
So it’s pretty obvious, both rents and wages stayed pretty much confined and in-check throughout the housing bubble. The wage and rent fundamentals are still pretty tightly bound.
So that leaves inflation. Housing has always been thought of as a hedge against inflation, but seldom much more than that. A chart by Shiller that appeared in the NYT illustrates that very well.
Aside from that little dip we refer to as the Great Depression”, it’s obvious that home values have appreciated at rates slightly higher than inflation. Had inflation significant increased since 1990, we wouldn’t have seen the spike. Now, I’m sure we can get into an argument about how the government is keeping the inflation calculations low so it doesn’t need to pay COLA, but I’d prefer to table that one..
Caveat Emptor!
Grim
Who needs salary increases?
Just get 10% + homeprice increases and extract home equity. It’s a god given right.
HAHHAHAHA
Lots and lots and lots of people counting on this scenario continuing are in for a very big shock.
Money doesn’t grow on trees and none of this computes.
FLAT INCOMES DOES NOT = 100% HOME PRICE APPRECIATION LAST 5 YEARS!
THIS IS LUNACY. FOOLS BORN DAILY.
GO AHEAD LEVERAGE UP AND SIGN YOUR LIFE AWAY TO BUY A POS SHACK MCMANSION.
JUST REMEMBER PROPERTY TAXES AND ENRGY COSTS AND LIVING EXPENSES ESCALATING UP.
I looked ata couple of open houses in the Edison condo hot spot, and several were empty already and realtors gave the familiar “owner is anxious!” Hope it is true for this potential buyer !!
Roy G Biv
Hey Roy,
How anxious are they?
They are probably asking a price that is 150% higher than just 5 years ago.
A 10% reduction is not anxious.
Ask the friggen commissioned realtor to run a price comparison at year 2000. Add in 5% increase per year and that’s your number.
I know what the commisssioned realtor will say. You can’t
put the bid in for it would be an insult. Tell the realtor to buy it since it’s such a great bargain.
DO NOT BUY A CONDO NOW. CONDOS WILL CRASH 50% IN VAUE. THEY DID IN EARLY 1990’S. NO REALTOR WILL EVER SHARE THIS INFO.
WHAT THE HELL DO YOU GET WHEN YOU BUY A CONDO. MAINTENANCE PAYMENTS NO PRIVACY AND NO LAND. WHAT DO YOU OWN?
Okay, okay, I’ll keep the money under my mattress a few more months
Whenever anyone tells me they are interested in buying a place now, I tell them to register and log into taxrecords.com. Then, for every home you are interested in, do a lookup into the tax database and find out what the owner paid for the place.
If you are feeling generous offer about 7% a year on the price they paid..
grim
Thanks grim.
The taxrecords.com is really useful.
In recent 3 weeks, my wife and I were looking at houses in North Brunswick and Edison area. At least 5 out of around 14 are reducing price about 10k to 20k. Some of them were in the market for a while and some are just a few weeks before the reduction.
Now even my wife believes that the market is going down and is willing to stay in appartment for a bit longer.
ailuj
Grim,
Here’s a little something from the New York Post:
SELLERS’ SLUMP IS A HARSH REALTY IN TRI-STATE
By BRADEN KEIL
The chill in the Manhattan residential real-estate market is blowing across the city’s suburbs and outer boroughs.
From Westchester County to Fairfield, Conn., to Bergen, N.J., the tri-state area is seeing prices and numbers of sales stalling or dropping, while inventories of properties are starting to pile up.
“Sales are drying up at the top,” said one northern New Jersey broker. “And now homes on the lower end [of the price scale] are sitting for weeks and months.”
The latest indications of a downswing are reflected in recent numbers posted by the Commerce Department that show construction of homes and apartments fell 5.6 percent last month. At the same time, applications for new building permits, considered a bellwether of future construction activity, dropped 6.7 percent — the largest decline in six years.
Economists point to higher mortgage rates as the culprit, making home construction more expensive after four straight years of record sales.
In Brooklyn, residential prices went up more than 40 percent between June 2004 and June 2005. But they dropped 10 percent between this past July and the end of September.
On Staten Island, prices also are cooling down, with brokers noting longer sales times and homes more often selling below the asking prices.
Queens prices had a small decrease from July, while properties on the market increased substantially from the third quarter of last year.
But it looks as if things are the worst in The Bronx, brokers say. Numbers are already significantly down from the summer and could show the most weakness by the end of the year.
Meanwhile, in leafy Westchester County, monthly numbers posted by the New York State Association of Realtors (NYSAR) show a 6.8 percent fall in median price, from $730,000 to $680,500, just from August to the end of September.
And the sales numbers are even worse, with a whopping 36.3 percent drop, from 842 to 536, for single-family homes.
The median price for a stand-alone residence in Putnam County fell 16.6 percent during the same period, with sales taking a more-than-27 percent dive.
The Westchester-Putnam Multiple Listing Service’s third-quarter sales report showed a 12.7 percent drop in the number of single-family home sales, from 6,700 to 5,850 in the last quarter.
During the same period, median home prices rose slightly, from $700,000 to $711,000 (1.5 percent), a relatively disappointing figure compared to the $615,000 to $700,000 (12.1 percent) rise from the first quarter to the second quarter in 2005.
A Post survey of northern New Jersey brokers showed similar dismal results, with prices ranging from flat in working-class areas to dropping nearly 10 percent in more affluent communities.
In Connecticut, the latest market report by Prudential shows single-family homes to be down 4 percent from last year’s figures.
“Expect that when we get to the end of the year, single-family [home] sales will be off by about 5 to 7 percent from 2004 levels,” said Prudential Vice President Barry Rosa in a market report.
Throughout the United States, the National Association of Realtors reports that the inventory of existing homes has risen 19.6 percent from September 2004 to September 2005.
“It’s really a tale of two markets,” said Daniel Ginnel, president of Ginnel Real Estate in Bedford Village, who is considered northern Westchester County’s top broker.
“On one side are sellers who are asking ridiculously high prices to see if anyone bites. And on the other side are serious, motivated sellers. Now you’re seeing the non-serious sellers starting to have an impact on inventory numbers.”
Ginnel said the pullback “creates a window of opportunity” for buyers.
But adding more fuel to a downswing is President Bush’s Advisory Panel on Federal Tax Reform, which is recommending that the administration do away with mortgage-interest deductions.
According to the National Association of Realtors, housing prices could decline 15 percent if the Bush administration agrees with the panel.
Already in Suffolk County, L.I., NYSAR reports the median sales price slipping from $415,000 to $410,000, with more than a 9 percent drop in sales numbers.
Nassau County, L.I., meanwhile, nudged upward a mere 1.4 percent in price from $506,760 to $513,750 from August to September but posted a 5 percent loss in number of sales, from 1,097 to 1,042.
braden.keil@nypost.com
My agent told me one of his clients bought 1db condo in Edison Hollow at 160,000 last year and ask for 190,000+ now.
this condo has been on the market since sept. and has been relisted this month.
an acquaintance of mine just bought an $800,000 1BR apt on the upper east side in Oct. when he told me at a party I held my breath so as not to start screaming IDIOT. he proceeded to explain how house prices in NY could never go down because there isn’t any more land, and “there’s only one Upper East Side.”
well, seems to me, Manhattan was already pretty built up in 1998 before co-ops appreciated 150%. so is there 150% less land now?
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