Sorry to inform you all, but we are no longer the highest median household income state in the country. According to Census data released yesterday, we’ve lost the top honors to Connecticut.
Connecticut, with a median household income of $56,409, supplanted New Jersey as the country’s highest wage state in 2003, the most recent year available. New Jersey slid to second, at $56,356, followed by Maryland, Massachusetts and New Hampshire.
The fact that New Jersey had the highest median household income in the country was often used as a rationalization for the bubble prices here. Now, while I may be nit picking over a few dollars, the truth is we can no longer claim that honor when it comes to median income.
Now, granted, those are 2003 dollars and it’s 2005, but I’ll argue wage growth in NJ has largely been unchanged over that period. I asked the question once before, with the median household income in the mid $50,000 range, who exactly can afford to buy a home in New Jersey?
The median family making $56,000 probably doesn’t have $50,000 in savings but let’s say they do. They probably have a bit of credit card debt, say $300 a month and a car payment of $300 a month (hey, I’m being generous here). Figure roughly $700 a year in HOI, and about $6000 in taxes..
Plug that into whatever trusty affordability calculator you use and see what you get. I got somewhere around $150,000 as a top end estimate. So, let me ask you, how are these folks stretching to buy homes? Easy. Use an I/O mortgage, Option-ARM mortgage, or some other Neg-Am mortgage. Maybe they borrowed against their 401K for a downpayment, dipping into their savings every month to make ends meet (and hoping for a huge payout in a year or two). Maybe they bought with a 1.25% teaser IO (like one I heard on the radio yesterday, where the buyer can find themselves owing 125% of the original mortgage amount) not realizing what the heck they were doing. Or maybe they thought they could beat the market, using one of these loans as a high leverage play, hoping to get out before the real payments set in.