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).
Nice rational approach to look at the real estate market. Unfortunately the real estate market is made up of a bunch of irrational fools and speculators getting risky low interest loans to buy houses.
The problem that I have is that many people that own a house could not even afford the house they live in. Based on some of my work I believe house prices in the area are overpriced by about 25%.
Things have definately slowed, but don’t expect a realtor to share this with you. You can’t trust any one of them.
Looking forward to the fall in prices which I expect will hapeen much more quickly than the past due to the excessive leverage to buy a house and the risky loans being used by buyers today. many will find themselves in deep trouble soon as property taxes, gas and utility bills escalate in price.
Late credit card payments are at a record high, and the holiday spending season & heating bills haven’t even started to pour in yet. If they think this is bad, I wonder what they’ll say when February’s numbers are in. You’ll have a combination of higher interest rates, significant heating bills, continuation of high gas prices, and the doubling of credit card minimum payments.
This winter doesn’t look positive at all. The retailers know it, I’m already getting Chrismas/Holiday related sales flyers, catalogs, etc. This is the first time I can remember being hit with the X-Mas Blitz before Halloween, heck, it’s not even October yet.
I’ve posted a Housing Bubble poll on my site. The more participants, the more interesting the results. Cole @ The Boy in the Big Housing Bubble
How did you check this data? Is there a Website somewhere, do you need to be a realor, or do you have to go down to some tax office?