From the Record:
Typical home in North Jersey still out of reach for typical household.
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.)
FRIST
The article is essentially talking about affordability in terms of home price ratio. 99/00 had the nj median home price ratio at about 2.5 and as of December 2010 NJ was still at about 4.7
The slow-mo autopsy of the housing market cadaver continues.
All over, folks. Nothing but total annihilation.
An old client whose NJ house I sold a few years back moved to PA. Called me yesterday to ask me what to do: they’d defaulted on their mortgage, moved out of the house, let the power get cut off and the pipes had burst.
I told him to take lots of photos of everything, referred him to a really good agent, told him not to fix anything and informed him that his newly-destroyed house would be an easy short sell to an investor/rehab guy at a price reflective of the condition.
Ironically, the house will now have an easier go as a short sale than if he’d maintained it perfectly. Funny how the lender (the prestigious WFC, in this case) doesn’t have an appetite for the highest price possible once two floors’ worth of walls and ceilings are soaked with water and 1,800 sf or so of carpet has been turned into a mold factory.
I’m coming across more and more people in default who seem to understand that the easiest way to achieve a short sale where the lender won’t reduce the price is to abandon the house, let the power get cut off and let the pipes burst. Nothing like coming on the market 80K below your neighbor to get a house moved fast…
If you let the pipes blow in a big, old house with radiators for heat, it looks like the “say hello to my little friend” scene in Scarface when it’s all over with.
An exploding radiator throws off more shrapnel than a Claymore.
Talked to two older sellers yesterday who both told me the same thing, they are finding it harder and harder to stretch to pay the property taxes on fixed incomes. But even worse was the uncertainty around even higher taxes in the next few years. They were paying property taxes of $10.5k and $11.8k, no mortgages. Homes were both built in the 60’s, with few updates. Neither couple seemed particular enthusiastic about having to move, one didn’t even have firm plans on where they were going after closing, is anywhere really better than here?
grim debt
as neanderthal points out, some towns are holding up fine yet the historical trends are still a mess. It seems to that the conflicting signals are indicative of our own little version of mini-brazilification.
Those who can leave have/are and those left will be those who can afford the lifestyle they want or those who cannot afford to leave. The crazy thing is that some of those trapped look “wealthy” on the surface with their family incomes of 150+ that is eaten up by debt and mortgage
Grim – If someone can’t afford to $10,000 a year to pay their property taxes, then moving into another house is not the answer. These folks need to sell, recognize some equity and move into a affordable housing community or assisted living facility.
Grim, Debt
http://www.zillow.com/homes/mendham-nj_rb/#/homes/recently_sold/Mendham-Township-NJ/397829_rid/40.78581,-74.59801,40.782918,-74.60905_rect/16_zm/
This neighborhood in mendham is not very happy. I know several families in that neighborhood and they were all counting on their “paper” wealth from when their homes were being valued at close 800K to 1 million at the peak of the bubble.
The 2 most recent sales are not making the locals very happy.
Does anyone else see a problem when you have a 10K annual bill even thought the house is paid off???? What exactly do you own when you pay off the mortgage????
Cat – Are you suggesting zero taxes? In principal, I understand the need to tax, the size of the tax and the lack of control on spending of the tax is a different issue
Grim – If someone can’t afford to $10,000 a year to pay their property taxes, then moving into another house is not the answer.
Sure it is, cash out your Northern NJ equity and leave for a lower cost area.
Boken
Yes, as a matter of fact i am. Property rights are at the core or liberty and property taxes are an inherent affront to the true idea of “private” property. In our current system you are only leasing the land from the state in the best of circumstances.
There are certainly reasonable common costs that need to be covered such as infrastructure. Those should be funded through consumption taxes. Funding through consumption taxes allows for a more responsive feedback loop between the people and the government.
The neighbors in Glen Ridge have been extremely outgoing to us so far. We’ll see if it continues once the sale price we paid is listed in the local papers.
We took a friend (a local architect) through the new home to give us ideas for our kitchen and bathroom redo. He lives in Montclair around the corner from us. We played showcase showdown with him and asked him to guess what we paid. We even told him it was a great deal. His guess was over by $200K. He said he based it on a similar sale he saw recently in the same area of GR.
The bottom line is did we get a good price and my oh my did the other sucker seriously overpay. Contractor mayhem begins tomorrow. In other news, the engine light is back on again in the Xterra. Off to our local Firestone.
Boken
Consumption based taxation also prevents the government from becoming as bloated. If the government tries to expand to far, increasing consumption taxes beyond a point that most find acceptable, then you end up with a feed back loop of people avoiding taxation by not consuming. Barring corruption the government would then need to contract to come back in line with the tax load people were willing to accept and still consume.
“Does anyone else see a problem when you have a 10K annual bill even thought the house is paid off???? What exactly do you own when you pay off the mortgage????”
People are stupid. Bought a seasonal service business about 18 months ago, few real assets.
The seller kept telling me how he was selling me the [business]. How great it would be to ‘own’ it. I kept responding that he didn’t own anything, he just had a LT leasehold which when combined with other fixed costs pushed the monthly nut to over $30k. That he was ‘selling’ me the ‘privilege’ of going out of pocket that amount each month before realizing dollar one.
Glazed over eyes.
The guy chased my bids all way down to the point where he calls me on a Friday in the off season and says ‘auction is on Monday, just give me something’.
>>The bottom line is did we get a good price<<
Cheapass. Vulture.
>>The guy chased my bids all way down to the point where he calls me on a Friday in the off season and says ‘auction is on Monday, just give me something’<<
There's a special place in hell for people like you and that stinking cheapskate Stu. It's a place where you'll be forced to pay top dollar for every damn thing.
I read this article this morning. This one goes in the top 5 headlines and is yet another benchmark moment for this blog. All of you have been spot on for years and all it took was simple logic. The outcome is/was never in doubt. We all knew it without even trying. It’s a total blowout and the big game was over before it even began. 26 for 32, 394 yards and 4 touchdowns. Stat after stat after story slowly trickling out about the death and destruction previously hidden behind closed doors. The secret is out, nothing left to discover. The only discussion now is trying to figure out how it all happened. Game over.
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 —
How many times over the last 3 months have I said, “see a house you like, offer 20% below asking. When they shutter and balk, walk away.”
Cat – I happen to agree with you. I am in favor of a flat tax or consumption based tax system. I have longed believed that the idea of property ownership has been pushed by our government so that they can attach another tether to your walllet.
You get taxed when you earn, taxed when you spend, taxed when you invest and even taxed when you die. What a wonderful system.
How many times over the last 3 months have I said, “see a house you like, offer 20% below asking. When they shutter and balk, walk away.”
Yup!
Word is that there are protest being planned in Saudi Arabia for the next few days. Plus their stock market is down 6%. Got a full tank of gas?
Cat, what you get with mtg payoff in NJ is a super sized tax burden that is only going to increase. Anyone who thinks the economy is going to improve and unemployment in the area will drop anytime soon is living in a bubble. Corp profits are up not because of sales growth but due to continued cost cutting. The worst is not behind us.
21, when it is all over, there are two stable, friendly democratic countries in the ME, Israel and Iraq. The rest are Iranian satellite states (yes, even sunni ones). And yeah, those states and the proxy groups have nukes in 10 years. It is amazing what smart diplomacy can achieve.
Stu,
Any chance your check engine light is just an emissions issue and can wait until your NJ inspection is due. Check out the manual as to why the light comes on just in case.
18:
However, even at 20% off list, a lot of these homes are overpriced. I am eyeing a short sale that is still priced at 2006 levels! They are priced $5k below what a comparable home sold for in 2006. If I take that sale into account, 20% off of list is still too high. However, assuming 3.3% appreciation from the time the property was previously sold, 20% off of list is still less than what the house is worth.
However, there is another property I am looking at where 20% off of list is just a little bit higher than what the property is worth (Assuming 3.3 % appreciation).
I am in the process of pulling the permits on each home and reapplying with the morgtage company I dealt with in 2009.
BTW: any deal with Deutche bank on short sale? Are they dimwits?
BTW:hello re 101
Stu,
CEL’s can be checked for free at Autozone. They walk up to your car, plug it in, read the code and you say thanks. You then Google the code when you get home and proceed accordingly.
I’m surprised you made mention of a tire dealer repair place. A true cheapo would hire an out of work mechanic via craigslist to come to your driveway and fix everything for thirty cents on the dollar. There’s plenty of guys out there who’ve been working for 10-20 years that will do work on a flat fee basis while you lounge at the crib.
Re101
Gets better on that business purchase.
The call on Friday was that he intended to get an auction company in there on Monday to take away what FF&E he had.
Part of the deal I was trying to strike with the seller was that I would only buy the business if I could get an option to buy the property. He said landlord would do it. No way I’m letting this bozo negotiate my money so I ask him if we can meet the landlord togther on this topic. He attended the first meeting and was disinterested in the rest.
So on that Friday phone call I ask him what arrangements he’s made with the landlord. He says none, he’s basically cleaning out the place and running out on the lease (of which he was already in default). I dial my new BFF the landlord on Saturday who padlocks the place on Sunday. Ended up getting the whole business for no cash out of pocket. Signed a new lease at 25% off current rate, got 50% of the lease security returned of which the seller received half as compensation for the business. Took over the existing business liabilities (most guaranteed by the former owner) and have been CF positive. Booyah.
Cat,
I agree with you. Politicians moan about low savings rates, then they manipulate interest rates down, tax interest at high rates, tax incomes to subsidize the consumption of others, and promote fairy tales about the government taking care of everyone in old age (meaning that saving is presumed to be a luxury rather than a necessity like credit funded fancy cars and vacations, i-phones, granite countertops).
A consumption-tax centric system would improve the incentives to work and save, on the margin. But best of all would be letting people pay for what they get, and taking government out of the business of being middleman for 40% of the economy, allowing all taxes to go down.
Old people staying in NJ are financially crazy. Their taxes are mostly going to fund the state-run-school-bureacrats, and much of that in the illiterate hellholes of NJ. For 10k per year, you can just about pay the annual rent on a place in the South. And everything else is more expensive around here too.
I won’t stay in NJ one year longer than I work here.
#21 Yup. Filled up this morning. Plus a little extra in a gas container. Mostly because some people in this house who shall remain nameless tend to drive on fumes, but supplies could become a problem pretty quickly too.
Affordability is not an issue. We simply have too many houses and apartments, and they are too large. Hong Kong is an order of magnitude less affordable, but with the land restrictions becoming yet more expensive every year. When you’ve got 3 generations in a 1-bedroom, you are willing to pay much more of your income to get another place to live in. If the stimulus money had been spent on buying and bulldozing the sickest RE around, we’d be out of the funk by now.
Zieba, Dan…good advice on my car repair. Captain Cheapo uses Firestone because they virtually pay ME to fix my car. If you use their credit card, they constantly send you $20 off of $30 coupons which makes oil changes effectively $10 complete. Then they send you 10 to 15% rebates on all the work they do. On top of that, they after about a year you get inducted into their premier program which brings free lifetime tire rotations and liquid top offs. It also includes free roadside assistance (since they’ll tow you to Firestone) for all cars and drivers including others cars as long as you are in it. They have always been very fair with me and I can often negotiate them using junkyard parts or TireRack tires. Quite honestly, they lose money nearly every time I use them. As for quality, as long as you make sure the lugnuts are tightened after wheel or break work, you’ll be OK. And always inspect the work before you pull away just to make sure they don’t pull a quick one on you.
Repost from yesterday…
NJ Affordability index
http://www.scribd.com/full/47793178? access_key=key-1ii69k2bgqpk41q3gdfe
“The neighbors in Glen Ridge have been extremely outgoing to us so far. We’ll see if it continues once the sale price we paid is listed in the local papers.”
I hope you’re just as nice to next years buyers when they inevitably buy into your neighborhood at a discount from what you paid.
Let’s try this again…
http://www.scribd.com/full/47793178?access_key=key-1ii69k2bgqpk41q3gdfe
Sweet blog post, incredible webpage layout, keep up the good work
Cat [9],
What exactly do you own when you pay off the mortgage????
http://www.youtube.com/watch?v=tfp2O9ADwGk
I am not convinced by the argument for consumption taxes over property taxes. Many parts of my property tax – fire and police – are insurance in disguise, and should scale with property value. School taxes in particular in NJ are capitalized into the value of property.
Ask those people moaning about $10k in taxes if they would be happy to cut their school taxes if that cut their schools’ state ratings. Even with no kids, once they think about it and realize it will cut the “value” of their house by hundreds of thousands, the answer is not so clear cut.
Auto Repair, check engine light:
A couple of local places that do good work:
Bernies – Millburn Ave
Carnevale’s Gulf
Just noticed that a neighbor’s house went on the market. Seemed to be a decent level of traffic. House is smaller than mine on a smaller lot. Will have to try to get some details.
Girl in house is a friend of my daughter’s, and my toddler loves to play on their seat swing in the front yard. Sigh.
[28] A. West
Ditto. In fact, my honey-do list consists of a lot of things that will eventually be necessary to sell. Might as well do them now and get some use/value out of them, rather than just doing repairs/upgrades/improvements for the next owners.
Conceivably, we could be looking at going on market in spring. All depends on job market, and where one of us finds the next job.
Amazingly, with all the unemployment out there, I am still having trouble finding a decent parent’s helper to sit with my toddler a few afternoons a week. I am beginning to agree with Frank–“what recession?”
And among the candidates that are replying, their level of academic prowess and general awareness is stunningly bad. Makes me wonder if I came across as that stupid when I was 19. Probably.
“There’s a special place in hell for people like you and that stinking cheapskate Stu. It’s a place where you’ll be forced to pay top dollar for every damn thing.”
I think we”re already here that sounds like NJ to me!
Unless there are a few key assasinations in the next few days then regime change in eqypt looks pretty certain at this point
Comrade,
two professionals I know who are unemployed are making it under the table while collecting unemployment by sitting for working people. They are not near you but I too would think this trend would be strong….(not a fan of teens watching my kids either).
The revolution WILL be televised
Mocha said, “I hope you’re just as nice to next years buyers when they inevitably buy into your neighborhood at a discount from what you paid.”
Absolutely. The cheaper access to the neighborhood they obtain, the less I’ll be paying in property taxes going forward. Might convince Gator to give a free seminar at the next block party to get the ball rolling.
The revolution WILL be televised (on Al Jazeera).
libtard [45]
Absolutely. The cheaper access to the neighborhood they obtain, the less I’ll be paying in property taxes going forward.
Absolutely not. Unless your neighborhood drops in price disproportionately, when the town eventually gets guts to re-evaluate you have a good chance to bounce back to the old tax or higher – as the total amount the tax collector wants to bag never drops. What you are doing is a getting temporary relief for yourself at the expense of your neighbors who don’t have time/knowledge/strength to appeal.
[46]
The revolution WILL be televised (on Al Jazeera).
I hope a few of Al-Jazeera personnel get bagged in process.
[43] barbara,
Surprisingly, I am not finding that (if I were a woman, I would do that in a heartbeat).
I would love to hire my neighbor for that (husband is a 99-er that is still out of work), but I think that would be awkward since they are friends and our daughters play together. If she raises it though, I will be all over it. In fact, if she ever raises the topic, I would tell her that she should do that, and that I’d hire her in a NY minute.
25 glad to hear im not the only one experiencing this.
My guess is that inner cities and far commute suburbs are prob down 50% from peak, while nicer towns are down 5%-10% from peak, thus case shiller ny/nj average price is down 25% from peak. Just a guess on my part. I really don’t track the inner city market.
cobbler
there are already a few video’s out of protesters being taken out by sniper fire.
Punch
insurance in disguise
If you want the insurance then you pay for it. And its not the money that makes good schools, but sound, involved families.
In Bucks County, 5,215 homes were sold in 2010, compared to 5,522 in 2009 and 7,387 in 2006. The median sales price was $280,000 last year, compared to $262,250 in 2009 and a high of $300,000 in 2006.
In Montgomery County, 7,340 homes sold last year at a median price of $259,000. That compares to 7,912 homes and a median price of $249,000 in 2009, and 11,237 homes for a median price of $270,000 in 2006.
http://www.phillyburbs.com/news/local/the_intelligencer/the_intelligencer_news_details/article/27/2011/january/30/home-sale-prices-are-rebounding-1.html
Homeowners are tax slaves. Just filed my 2010 return. Drinking Glenlivit 18 year old to commeserate. Buddy of mine (former Marine) flys for Delta. Just landed in Amman and is hanging out with the Marines in his hotel in case Egypt spreads.
“The article is essentially talking about affordability in terms of home price ratio.”
Cat, true and its also factoring in the cost of financing.
Here is the price to med income chart, that i use… http://www.scribd.com/full/45597481?access_key=key-2bsjqirj1x5u2hekkv6r
It’s similar to what you described in #2, yes NJ price to income was much higher during the 2005 bubble than during the 1989 bubble, however, mortgage rates in 2005-06 were also half of what they were in 1989, so factoring everything in, homes were about as affordable during 2005 as they were during 1989, even though prices were much higher relative to incomes.
“Any chance your check engine light is just an emissions issue and can wait until your NJ inspection is due. Check out the manual as to why the light comes on just in case.”
Bad idea. Driving with CEL on can damage your oxygen sensors and catalytic converter, result will be ~ 2K in repair bill.
53- Dl,
Interesting that prices were up in 2010 from 2009 by roughly the same amount as tax credit.
weird.
This affordability graph is misleading. It seems that affordability is interpreted by amount of money for monthly maintenance (otherwise why financing is taken into account)? But then it ignores property taxes and utilities that are significantly higher now than in the 90s.
If what counts is ability to purchase and maintain then financing should be dropped or considered along with other expenses. In this case that graph will look significantly different. To say that affordability is comparable to 1994 or 2000 is laughable.
Perhaps NeadEconomist is NeadRealtor or NeadSeller or NeadProspectiveBuyerWhoWantsToBuyNow
Skeptic, you’re right, my affordability index doesnt include property taxes, maintenance costs, utilities or homeowners insurance. It also doesnt include commissions or fees paid to real estate agents and mortgage brokers and it also doesnt include taxes or tax write offs.
It just includes price of home, median income, mortgage rates, and inflation.
I’m not trying to convince anyone to buy, ive been a renter for the last fifteen years. In fact, i can care less if you buy or not. I’m just sharing my analysis to get a decent discussion going. Thanks for the feedback.
Skeptik
I know Neanderthal and he isn’t trying to sell anything. He may be overly optimistic but he isn’t selling anything
Skeptik, your handle sounds alot like someone who posts here regularly but his name is skeptik with a K.
Ket, stop posting under different handles buddy. ; ^ )
And im not overly anything.
I ran data as reported and put it on a chart.
Mortgage rates are at record lows. Why is it surprising that monthly mortgage payments for owning a home are near 30 year lows?
Median income keeps growing, it dipped a little bit during the recession but it doesnt really change much. Mortgage rates going from 8% to 5% makes a huge difference on mortgage payments, whether homes are overprced or not.
Nead
I am a skeptik with a K?
Anyways, one should stop taking factors into account if those do NOT change things significantly. Taxes (not tied to inflation and perhaps others) do and should be taken into account. Otherwise, I am not sure what the graph tell us.
Okay, you sound ernest so excuse for reading intentions.
“I am not sure what the graph tell us.”
Neither am i but i see banks and NAR talking about homes being very affordable right now and it made me want to look into it further.
What the graph tells me is this. Since cost of a home is only partially driven by price, we need to look at other factors including financing, maint costs, prop taxes, etc.
And since property taxes are often offset by your income tax refund for having a mortgage at the end of the year, and you have to pay utilities whether you rent or own, so really it’s home prices, inflation, and financing costs drive 95% of the costs of homeownership. If thats the case then we need to understand that although home prices are still extremely high right now, financing costs are extremely low. Therefore, someone who is focused on how much total monthly cost they can afford as a buyer will find that the nj market is quite affordable compared to the last 30 years of history.
Neanderthal
there are lies, damn lies, and statistics. Mine are no better or worse then yours and all can be interpreted in multiple manners. All I am saying is that you tend towards rosier outlooks within the data set you analyze. I don’t mean that as an insult just an observation. I tend to fall on the other end of that spectrum.
Don’t forget the maxim that you can reduce your rate but your principle is forever. Following from that, in general you ate better off with lower principle then a lower rate.
The standard affordability calculations are misleading if looked at casually and essentially give the opposite advice from the above maxim, as the standard affordability calc would point to you buying at high principle low rate
Financing drives affordability.
If you think about this example, a $400,000 home with a 20% downpayment and 7.00% 30 year mortgage, you really pay $400k for the home and then another $400K for interest over 30 years. No wonder it makes such a huge impact on affordability when financing costs practically get cut in half and 4.5% mortages are available.
Another way to look at it is this, who cares if you overpay for the home by $100K when you are paying $400k for financing!
“property taxes are often offset by your income tax refund for having a mortgage at the end of the year”
So if I do not have a mortgage then my property taxes are not offset. What kind of thinking is this?
I would think that property taxes count much more than 5% of ownership and the less the financing the higher this percentage is. So the lower the financing the more irrelevant your graph is.
Also contrary to your beliefs the 4.5% rate is also available to 30y mortgages issued in the 90s. Unfortunately your graph is not only irrelevant but also misleading.
“Don’t forget the maxim that you can reduce your rate but your principle is forever.”
Sorry Schrod, You can’t count on mortgage rates being at record lows today and then going up really high so you can buy a cheap house and then expecting them to come back to record lows again so you can conveniently refinance all within the next 5-10 years. You dont commit to a mortgage with the intention of refinancing in 5-10 years. In fact, that is the logic that created the 2006 ninja ARM disaster. And how did that end?
Dont forget that inflation will make your monthly fixed payment smaller while pushing home prices higher, or making them go down less, every year so low affordability today only gets more affordable tomorrow, not less.
“So if I do not have a mortgage then my property taxes are not offset.”
If you dont need a mortgage then the affordability graph doesn’t apply to you.
The Affordabilityindex i created only applies to people who need mortgage financing to buy a home. And what kind of a cheapo has $400-500k cash to buy a home, but then whines about $10-$13K property tax to live in one of the wealthiest states in the country?
Go to south dakota if you want to save $5k per year. I heard its lovely there.
“the 4.5% rate is also available to 30y mortgages issued in the 90s.”
Nope, the lowest levels that 30 year conventional loans went in the ninetees was 6.5%.
“you tend towards rosier outlooks within the data set you analyze.”
Maybe so, but im expecting another 7-10% drop in nj prices.
And it’s not that rosy to say that financing drives a large portion of affordability. And we all know that financing is at all time lows.
“Dont forget that inflation will make your monthly fixed payment smaller while pushing home prices higher, or making them go down less, every year so low affordability today only gets more affordable tomorrow, not less.”
I thought you have already taken inflation into account. Or now inflation counts twice?
“Affordability” is a loosely defined term. For example, retirement savings commands a higher percentage from your income nowadays that leaves less money for housing. Similarly for taxes. I would refrain for drawing graphs for it and let NAR and banks do it for you.
“the 4.5% rate is also available to 30y mortgages issued in the 90s.”
Nope, the lowest levels that 30 year conventional loans went in the ninetees was 6.5%.
Come on–use your imagination–what about refinancing?
“Or now inflation counts twice?”
The point is that it counts. And therefore needs to be included in the affordability discussion, which is why its in my index. You cant just look at prices and say, yep affordability is high/low.
“Come on–use your imagination–what about refinancing?”
What about VA Loans, 0% trial credit cards and loans from your brother in law?
In fact, lets discuss every single outlying, unlikely, statistically insignificant event that we can IMAGINE and then act as if it applies to the averages.
Refinancing has made those houses bought in 1999 dirt cheap. Feds policies brought a large percentage of currently owned houses into new levels of affordability and in effect brought the expense of this bailout to new buyers.
Open your eyes.
“Feds policies brought a large percentage of currently owned houses into new levels of affordability, Open your eyes.”
Great. I agree but homes are extremely affordable now. As in today.
So if feds coninue to push rates lower over the next few years, then todays buyer inceases their affordability even more in a few years when they refinance with a 3% more mortgage.
And so, what makes you think that MY eyes are the ones that are shut?
N.Econ.,
Thanks for the ongoing supply of charts. There are of course many ways to slice and dice the data, and there are always some missing variables one might quibble about, but you are providing relevant info to us gratis, and for that you have my appreciation.
But, contrary to your advice, I won’t stop complaining about my now ~$20k property taxes (which BTW, thanks to AMT, property tax isn’t really federal tax deductable for me) . NJ government has been feasting upon its populace for far too long, and delivers poor value for the money. The government are our employees, and they are out of control. Many employees and many whole divisions need to be cut.
N.E.,
Mortgage rates are clearly an important factor in affordability. Many people make big purchase decisions based on monthly payments. We may not like it, and we may not do it, but there are enough people who do to impact the market.
One of my favorite exposures in real estate is that my mortgage makes me short the US dollar, and short interest rates. But being a risk averse person, I already did a refi after one year, cutting my mortgage loan value to less than 50% of assessed value and purchase px. That’s a guaranteed 5% apr return, better than Bernanke allows me to make on my cash.
A West, Thanks and i appreciate your perspective as always.
I totally agree with your position at 78 and certainly do not mean to give advice or imply that property taxes don’t matter. My comment at 69 was really just intended to make a counter argument to skeptik’s point about someone who pays cash for a home.
Truth is that I would like to include property taxes in the analysis if i could get historical data in a relatively comparable and consistent format. But as you know property taxes are a clusterfck to nail down with all the moving parts of assessed values, equalization rates, etc etc for almost 600 different municipalities…
But yes i agree that $20K is not small change.
“my mortgage makes me short the US dollar, and short i nterest rates.”
Brilliant. home ownership as global investment/hedge. love it.
I see why it makes you short int rates but why does it make you short us dollar?
Dollar goes down, rates go up? If so, you’ve locked in fixed rate mortg so how are you short?
cat (8)-
There goes the neighborhood.
N.E.,
Simple, I owe a fixed amount of US$. Since my income is indirectly derived from a global currency denominated investment pool (working for a global investment manager), I’m aware that if other currencies appreciate vs the US$, it will tend to make my US$ liabilities relatively easier to pay, because that’s when business tends to be good, more people invest internationally, and my skills and assets become somewhat more valuable. Plus I have a lot of my assets invested internationally.
You want to owe fixed rate debt in currencies that will be devalued. If Clot’s dream comes true and the Fed turns the dollar into toilet paper, in 10 or 15 years that fixed monthly payment that today seems like a lot will only be worth a few wipes.
morph (25)-
Don’t single out Douche Bank; they’re all jackasses.
“BTW: any deal with Deutche bank on short sale? Are they dimwits?”
Debt Supernova says:
January 29, 2011 at 9:53 pm
yikes (289)-
Let’s see how well this jabroney does when an average day in Amerika involves dodging armed gangs and killing small animals and birds in order to live for another day.
I just saw ‘The Road’. That’s basically the scenario you describe … except worse.
Powerful, must-see flick…Albeit very depressing
lib (45)-
Can I bring my grenade launcher and have 15 minutes to speak at the end of your presentation?
“Absolutely. The cheaper access to the neighborhood they obtain, the less I’ll be paying in property taxes going forward. Might convince Gator to give a free seminar at the next block party to get the ball rolling.”
Debt Supernova says:
January 30, 2011 at 7:31 am
If you let the pipes blow in a big, old house with radiators for heat, it looks like the “say hello to my little friend” scene in Scarface when it’s all over with.
An exploding radiator throws off more shrapnel than a Claymore.
I would pay to see your standup. Seriously.
cat (65)-
I deal with deadbeats, thug banksters and the insane process of short sales and loss mitigation. What I’ve seen in doing this on a daily basis for the past four years should explain to all here why I regularly post on this board at 4 AM and have developed the mindset of a skid row drunk.
What Veets (and, really, all of us need to keep in mind) is that 80% of the statistics out there in the public domain are either incorrect or outright lies. When you see the reality of how bad it is now- and how much worse it inevitably will become- trying to read the tea leaves of these fraudulent, inaccurate statistics pales in comparison.
Doom is nigh.
Back on the pace of getting at least one new short sale inquiry every single day.
Last time I had this kind of action was fall, 2008.
This time, I’m sure I’ll decline to work with most of these people.
Westy, cool, got it.
Thats interesting since I dont usually tend to think that globally but a straight up inflation hedge will definately be an important consideration for my purchase decision.
This is new…
I had a seller make me an offer today, and it was very attractive versus the already reduced ask.
88 debt. Some days trying to have an unbiased discussion about real estate in here is nothing less than mission impossible. Had I posted the very same chart with the one exception that it showed incredibly low affordability, instead of high, and unequivacally concluded that real estate will crash, many here would automatically believe whole heartedly in it. But because the result runs counter to a predetermined completely and hopelessly negative outcome, its got to be wraught with manipulation and/or some derivation of irrelevance. Talk about a tough crowd. Lol.
91 grim i like that. That whole scenario basically sounds like an open invitation to low ball counter offer.
Cobbler (47):
“What you are doing is a getting temporary relief for yourself at the expense of your neighbors who don’t have time/knowledge/strength to appeal.”
Absolutely. I suppose it’s the only way for us who repeatedly got screwed by our governments bailing out of the those who behaved poorly.
Firestorm (56):
“Bad idea. Driving with CEL on can damage your oxygen sensors and catalytic converter, result will be ~ 2K in repair bill.”
Actually on the Xterra it’s closer to 4,500K as it has 4 cats plus the sensors. I know as I was forced to replace them all at 79,500 miles, just a few hairs short of falling out of warranty. And I didn’t drive more than 20 miles with the engine light on, even though the Nissan dealer tried to claim that I did. I’m guessing it’s the same problem again. If it is, I’ll write Nissan Corporate AND Simplicity Corporate simultaneously. Meanwhile, 16.5 year-old Lightning McQueen continues to perform beautifully. Just got 39 miles per gallon on the last fill-up.
8o the last short sale I was silly enough to get involved in is still sitting empty, foreclosed and ruined for more than a year. I’m pretty sure the realtor is still patiently waiting for the final and official 2nd lienholder decision. For the life of me I can’t figure out why its a good thing that we’ve incentivized banks to bahave like this.
N.E.,
The house isn’t a short-term inflation hedge though, because I doubt it will perform well if inflation, interest rates, and mortgage rates rise together, reducing buyer affordability. Thus to get the benefit of the devaluation of your mortgage, you have to stay in the house for a good long time, as you loose the then low rate if you have to sell & buy. For those in NJ, one problem is that it’s hard to stay put while NJ govt is plundering you with higher taxes each year, a bill which is not fixed and will likely keep up with inflation. Local government says relax and enjoy it. The net present value of my tax payments, growing 2% annually, is equal to about 75% of the current value of my house, discounted at my mortgage rate. That liability is bigger than my mortgage ever was. This is the case for most NJ homeowners, they just haven’t thought of it and quantified it that way. As the value of that tax liability rises, govt is eroding the value of the house, and before long will become the primary claimant to its value.
Which is why I think that nobody in NJ can feel like they really own their homes, even with no mortgage. We’re just renting our homes from the NJ public employee unions, and the endlessly needy of Newark, Camden, etc.
This is not progress, this is universal sefdom.
97 – true enough, nobody really knows if homes would properly hedge inflation. I went back to the last time rates spiked from 10% to nearly 20% because of inflation in the late 70s and found that average home prices still rose quite strongly believe it or not. have a look here…
http://www.scribd.com/full/45642383?access_key=key-o0i1c57nduyma7vmp9z
If i had to guess why this happened, i would say that the sudden wave of inflation caused a panic for people to buy homes not as an investment or shelter but simply as an inflation hedge. in todays market almost nobody is buying homes because of inflation, but if cpi started jumping up past 10% i would guess that we would see a completely new type of inflation-fearing buyer emerge from the woodwork helping to push up prices.
“in todays market almost nobody is buying homes because of inflation,”
This thought was always in the back of my mind as I’m currently leveraged to the hilt.
Lib even if inflation stays low you’ve still inflated away roughly 10% of your monthly mortgage over 3-4 years. And if you catch a year with 4 or 5% cpi its like you’ve hit the pick four. But like westy points out, expect your taxes to go up to eat into some of that. hopefully not all of it.
Schrodinger’s Cat says:
January 30, 2011 at 5:51 pm
there are idiots, damned idiots, and you. All I am saying is that I tend towards rosier outlooks while you fall on the other end of that spectrum. I mean that as an insult as well as an observation.
Maybe north jersey and nyc has escaped the downward price spiral experienced by most of the rest of the country. I guess the high concentration of wealth and high paying financial industry jobs help. But don’t you think that those states with the biggest price declines and lower taxes will attract those businesses and people away from the nyc metro area i.e., the comparative advantage.
clot: where is the gratitute for the boys from Queens?
http://sports.espn.go.com/ncb/recap?gameId=310302599
N.E., of course inflation doesn’t help inflate away debt unless it flows to household incomes. If food, autos, fuel, utilities prices and your tax bill all get inflated, but your paycheck doesn’t, then it made your mortgage harder not easier to pay.
Maybe in the 1970s early 80s nominal household incomes for those employed were rising with inflation?
Time to go check on how the construction of my apartment in Chengdu, China is going. Happy Lunar New Year to everyone who cares.
A West, Happy Lunar New Year to you. One of my project teams is based in Dalian, China
Aw. yep very true. Its a big astericked assumption that cpi and incomes are always (or ever) perfectly correlated or even positively correlated for that matter.
102. I don’t think ny/nj was ever ground zero for the housing bubble. The underlying economy is strong and mature here compared to vegas and pheonix and I guess it didn’t hurt that all the wall street banks received the bailouts. If the bubbly cities take a 50% hit, it would make sense to me that ny/nj experiences only 30%. But let’s not forget to be grateful for 30% discounts plus lower rates. That’s pretty darn respectable.
DL says:
January 30, 2011 at 3:39 pm
In Bucks County, 5,215 homes were sold in 2010, compared to 5,522 in 2009 and 7,387 in 2006. The median sales price was $280,000 last year, compared to $262,250 in 2009 and a high of $300,000 in 2006.
In Montgomery County, 7,340 homes sold last year at a median price of $259,000. That compares to 7,912 homes and a median price of $249,000 in 2009, and 11,237 homes for a median price of $270,000 in 2006.
http://www.phillyburbs.com/news/local/the_intelligencer/the_intelligencer_news_details/article/27/2011/january/30/home-sale-prices-are-rebounding-1.html
Great news! We got a great deal two years ago and a house in the neighborhood is on the market. Will be interesting to see the sale price.
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