Was a slow weekend, so I decided to go through some listings & tax data to see how “overpriced” a representative sample of homes were. I picked communities that some might think were a bit more ‘upscale’, however I do think they are representative of the area as a whole. The towns picked were Mendham, Chatham, Wayne, Montclair and Ridgewood.
I went through listings one by one until I found a home that sold between 1990 and 2000. I thought this was far enough back to illustrate the gross difference in current asking prices and what I believe the asking price should be. Addresses were not included, as to protect the ‘innocent’.
Now, in order to come up with the fair asking price, I assumed 5% appreciation per year over since the year of purchase until now. Now, you might say 5% is too low, however I think 5% is generous given the fact that buildings are assets that depreciate. To this value, I assigned the name, “More than fair price”, since I believe, it’s more than a fair number for a home. In fact, in many cases, over a long time period you would have been hard pressed to make the same gains in CDs, Bonds, or the Stock Market. I picked homes that did not have any major remodeling, construction, or updating done to the house, as to not confound the ‘value’. So lets take a look..
Home A – Mendham, Morris County
Sold 1997 $354,900
More Than Fair Price $524,000 (8yr @ 5%/yr)
Asking 2005 $819,000 (8yr @ 11%/yr)
Home B – Chatham, Morris County
Sold 1995 $525,000
More Than Fair Price $855,000 (10yr @ 5%/yr)
Asking 2005 $1,295,000 (10yr @ 9%/yr)
Home C – Wayne, Passaic County
Sold 1996 $375,000
More Than Fair Price $581,000 (9yr @ 5%/yr)
Asking 2005 $749,900 (9yr @ 8%/yr) – Orig $774,000
Home D – Montclair, Essex County
Sold 1993 $238,000
More Than Fair Price $428,000 (12yr @ 5%/yr)
Asking 2005 $599,000 (12yr @ 8%/yr) – Orig $699,000
Home E – Ridgewood, Bergen County
Sold 1991 $175,000
More Than Fair Price $350,000 (12yr @ 5%/yr)
Asking 2005 $649,000 (14yr @ 9%/yr)
Absolutely unreasonable percentage gains here, I think this helps illustrate why I think prices are going to fall approximately 30-40 percent (beginning in the very near future).