From the Record:
Mortgage rates are at a rock-bottom 5 percent, and home prices have tumbled as much as 20 percent — making North Jersey homes much more affordable.
But the region remains one of the costliest real estate markets in the country. Buying a home — including the cost of property taxes — remains more of a stretch than it was even a decade ago. In a recent analysis of property sales data, The Record found that a North Jersey household with the median income is further away than they were in 2000 from being able buy a median-priced house — a traditional measure of affordability.
Kate and Mark Chabus know this reality firsthand. She’s a nurse and he’s a chef, with paychecks that put them in the range of Bergen County’s median household income of around $90,000. Because they’re expecting their second child, they’re about to outgrow their Englewood apartment. They started their house hunt in Bergen County, looking at properties in the $330,000 range — about $100,000 below the county median.
“Every time we mentioned to anyone that we’re thinking of buying, they’d say, ‘This is the time to do it; you can get a good deal,’ ” Kate Chabus, 28, said. But the Bergen County homes that they could afford needed a lot of work. So instead, they’re buying a three-bedroom Pequannock town house that was listed in the mid-$300,000s.
Unless incomes rise rapidly or banks ease their mortgage standards, the numbers suggest that home prices may be headed down further, with Passaic ripe for the biggest drops. However, analysts caution that other factors, including the area’s proximity to New York City, could boost demand enough to prevent steep additional declines.
The typical Bergen household could afford the typical house in a majority of New Jersey counties, but not in Hunterdon, Essex, Morris, Monmouth, Somerset and Cape May. The typical Passaic household, however, would have to go to Cumberland, Salem, Gloucester or Camden counties in the generally poorer and more rural southwestern corner of the state to find something affordable.
While incomes (after inflation) have dropped 4 percent in Bergen County and 18 percent in Passaic over the past decade, the region’s home prices are about 70 percent higher than they were in 2000.
“Even with the price corrections that have occurred, our most expensive markets are still not back to the level of affordability that we saw prior to the housing bubble,” said David Stiff, chief economist at Fiserv, an information management company that tracks real estate prices. “That’s definitely true with the New York metropolitan area. It’s also true in a number of other markets, such as San Francisco and Los Angeles. Households place a premium on being able to live in those markets, in part because there are more high-paying jobs and more diverse economies, so that if they need to change jobs, it’s easier to change jobs.”
Fiserv predicts a further 10 percent decline in the region’s home prices. But according to The Record’s analysis, Bergen prices would have to come down 17 percent, and Passaic prices even more, to be truly affordable — defined by the federal government as monthly housing costs that take up no more than 31 percent of a household’s monthly income. (Some mortgage lenders will allow for a higher percentage to be spent on housing, but generally only for borrowers with excellent credit scores, little debt and large down payments.)