Can anyone really afford Northern New Jersey anymore? There is no question that affordability is bordering on just about impossible unless you are making at least twice the median income, and even then you don’t get much to show for your precious dollars.
The Center for Housing Policy does a yearly study, the Paycheck to Paycheck, to evaluate just how affordable housing is for workers.
When it comes to the health and vitality of America’s communities, affordable housing is key. And where it is lacking, the challenges are formidable. Local governments deal with overcrowding and congestion. Employers struggle to attract and retain the labor force so vital to their bottom line. Low- to moderate-income working families work longer hours, endure long commutes or cut back on basic necessities in order to pay for housing.
Who are among the ranks of America’s workers struggling to afford housing? In some high-priced communities, people who provide the bulk of vital services – teachers, firefighters, police officers, retail sales workers and restaurant workers – cannot afford to live in the communities they serve. Even in more moderately-priced communities, people who work a full-time job pay an excessive portion of their income for housing.
They put together a very nice website that allows you to choose an area and choose a set of professions to map just how affordable the housing market is for ‘every day workers’..
To save you some time, I went ahead and ran the analysis for Atlantic City, Bergen, Newark, and Middlesex.
With affordability this low, can anyone afford to buy a home anymore?
Caveat Emptor,
Grim
Here is a link to the tool:
http://www.nhc.org/chp/p2p/
-grim
Maybe with corrupted mortgage brokers, but I certainly do not want to buy a dump for 3 times more than it shoud be.
NO they can’t using rational prudent mtg loans.
The real estate industry should be ashamed of itself for socking it to first time buyers.
Manipulation and spin are used to keep the “Ponzi” game going. It is a ponzi. Homeowners in order to step up need to sell their house in order to step up.
You got to keep convincing first time buyers it is worth it to leverage your future away in order to get in. Do not listen to these self serving greedy people.
Bid alot less.
35% less for houses and 50% less for condos.
All you have to do is get comparative home sales from year 2000 in the neighborhood you want to bid. DO NOT WASTE YOUR TIME GETTING RECENTLY COMPARATIVE SALES.
This inofrmation tells you NOTHING about how far prices have come. All it tells you is that the realtor and seller found a fool willing to leverage their future. All you need is one.
I really want to believe that it is just a “Ponzi Puzzle” waiting to fall apart, but I unfortunately learned in college [Rutgers when it was all men !!] that there is a supply and demand rule that supersizes all others. [spelling is McSpell for the McMansion generation]
??
Well, if the housing situation is a matter of supply and demand, why have rental prices stayed flat while house prices rocketed to the lower ionosphere?
One of the things I learned after college (RU from the co-ed days) is that despite classical economics “People are dumb, panicky, dangerous animals and you know it.”
(Men in Black, 1997)
Lax lending standards and a speculative fever together created this mess. Lenders pushing easy money have created demand where there should not have been.
Buyers that had no business purchasing homes were able to get mortgages for much more money than possible traditionally. This wanton lending created a new group of fools whose demand pushed prices sky high, further exacerbating the problem in a vicious positive feedback cycle of speculation.
Unfortunately, this whole mess is predicated on an endless supply of future fools to keep the party going. We are quickly running out of fools and the demand that comes with them. With mortgage rates moving upward, and margins razor thin at lenders, lending standards have nowhere to go but tighter.
What happens when these fools want out of their positions or worse, waves of forclosures? A glut of new supply hits the market putting even more downward pressure on prices. Then the hangover comes..
grim
This hoyusing market has everything to do with easy lax corrupt lending practices.
ALL BUBBLES ALL MANIAS ALL MARKETS THAT ARE SPECULATIVE ARISE OUT OF EASY LENDING PRACTICES.
THIS PHONEY DEMAND IS A CONSEQUENCE OF CREATIVE LAX EASY LENDING PRACTICES.
JUST WATCH AS LENDERS GET SPOOKED AND TIGHTEN UP AND SHAZAM EVERYTHING JUST COMES TO A HALT.
NO DEMAND NO BIDS AND CRASHING PRICES. WATCH OBSERVE AND REMEMBER WHAT YOU ARE WITNESSING. NEVER FORGET THIS LESSON.
Back to that affordability data, is anyone else just staring at the Bergen county data and wondering what is going on?
A decent home in Bergen is way over $450k, more like $700k and above. However, to afford the $450k, you need a combined median income of $142k, to get to the 7-8 range you’d likely be pushing $200k.
This party is fueled by funny money, that is for sure.
grim
hey, great site. I’m really interested in the Westchester county housing bubble, but since there doesn’t seem to be anything out there on it, N. NJ is a nice proxy.
as far as affordability goes, I’ve just accepted a job in NYC that starts at $125,000 (I’m currently a law student). My wife is a teacher. Combined, we should make about $170,000 next year.
This puts us solidly in the top 10% income bracket nationally, but I still don’t think we’ll be able to buy a decent house in the NY metro area. My point is that if people like me who have really good paying jobs can’t afford housing, then who can?
This post has been removed by the author.
“I really want to believe that it is just a “Ponzi Puzzle” waiting to fall apart, but I unfortunately learned in college [Rutgers when it was all men !!] that there is a supply and demand rule that supersizes all others.”
(Also from Rutgers) Demand is really incidental. This is like saying that the stock maket was fundementally sound in 2000, because demand for pets.com was strong.
As for supply, a near record number of building permits were issued in North Jersey in 2005, and population growth has been nothing special
My huband and I have a combine salary of over 300,000. We still cannot afford a house in Westchester. Compare to the houses down south, the houses we are seeing are huts. We are older and do not want to sink a million dollars into a hut and lose our savings. Would prices get down to a level in the very near future so that priceout older people like us can still buy a decent home ?
this is why these prices are unsustainable. at this point, only wealthy people can afford to buy. but most people who are wealthy didn’t get there by being stupid. patience will be rewarded. there will be a long decline in house prices in the NYC metro area over the next 5-10 yrs
I just don’t get how people are buying houses at these ridiculous prices in Bergen county.
I live in Cliffside Park/Fort Lee/Palisade Park area where one of the duplex unit built on a 50×100 typically sell for $550,000 and up.
http://www.njmls.com/cf/details.cfm?mls_number=2506489&id=999999
And interestingly enough, even with all these bubble talk, the prices for these duplex units haven’t changed much in the past several months. In fact, they’ve actually gone up. No idea how.
I mean, $600k means you need household income of $200k. Are people making that much money these days?
Are people in the NYMetro area making 200K annually?
On average, no, but in general, there are probably quite a few families that are. It would not be surprising for a middle aged educated couple to be pulling in 200K plus (combined) annually. Esp. in NJ, which has the highest per capita income in the country.
Look, prices are what they are. Those who have been priced out should look elsewhere, further West or South in NJ. That is how new areas develop. Were you people expecting everyone to live in Northern NJ while the rest of the state remains as “the boonies” forever?
Hi, have to wait 5 to 10 years we will be in a nursing home by then. Just about. Long term care is so expensive also. Thus good old honest citizens lose out in this nation. Go live in the boonies ??!!! Do you know that old people do not want to drive 1 1/2 hour one way to go to work??
By “old” you presumably mean 65 and older. (Although I would not even consider that, any more, as being old)
Anyhow, they typically retire at that point.
There is one place where you can get a look at where prices, in general, should be given rental rates.
It is the only controlled environment i can think of.
That would be, rent controlled NYC condos or coops. The individual purchasing the unit cannot simply evict the tenant and sell it on the market. Therefore they are stuck with the tenant who is paying a pittance of a rent.
As such, a potential buyer would be completely unwilling to buy, and market forces come into play. The seller has to sell the place at a rate which would allow the potential buyer to earn a profit.
AND THAT is what the price of a unit should be. Granted, though, rent controlled apartments are at below market rental rates.
Here’s an example:
http://www.elliman.com/Listing.aspx?ListingID=635570
They realize no one is going to buy this place without the potential to earn a profit off of it. So, for now at least, they want full cash. The buyer would then still make a profit because the rent is higher than the monthlies. If no all cash offer comes in though, financing would have to be accepted if the coop allows it, and/or the price would have to fall further.
Point of this all being: The unit’s value should be a reflection of what it could rent for monthly. In a normal, controlled, environment, thats how prices would be determined.
Unfortunately, right now the environment is not at all normal.
The term “priced out” makes no sense to me. Why? Because the cost of renting is significantly lower than the cost buying right now. So, why not just rent and have the homeowner subsidize your housing? Right now you’d be throwing away your money by buying, not renting.
Save aggressively, invest prudently, and retire early.
grim
This is all going to pan out and cause huge issues in the long run.
Does anyone remember the big debate over Social Soecurity a couple of months ago? How the Social Security funds would dry up buy 2000-whatever and there would be no money to pay retirement benefits?
How will the housing role play into this when people have zero or negative equity in their homes and they are planning to retire at 65? I sincerely doubt people will have their homes paid off using these stupid loans.
For all the people to took interest only and only paying interest; you are RENTING; not only that, your paying HIGH rent and taxes on top of that.
-Richie
Anon at 8:54, I am also interested in Westchester. Funny enough, my hubby and I are both lawyers a few years out(love the loans and regret every second wasted in law school – I assume you’ll be at a big firm – use it for what it’s worth and get out!). By now we are making more than 250K a year, and no, we can’t afford a place in Westchester. Well, “technically” we can, as we can easily qualify for the 700K loan for a place, but can we really afford it? Hell no, I say. That is, unless I want to stay in an unfurnished home, never go out, forget about cable and have no car. Add no vacations to that list. Sounds like fun and all, but not really my cup of tea.
Westchester has issues (at least Southern Westchester) similar to certain areas of NJ – you can buy a complete shack, from the 1960s, in a so-so school district, for 650K. By the way, you will pay 15K a year in taxes on it. That’s what I have always found the real issue to be – taxes. My husband and I make loan payments every month equivalent to that tax bill! NJ is just as bad.
I follow Westchester, and inventory is growing, just not in the range that you or I would be looking in. It may go a little more slowly than in some areas of LI or NJ. But I have to think that it will change up there. Just give it time, and listen to people with common sense – you are not a failure if you rent and save money for a few years. You’ll be better off than you would be paying 650K for a shack that you can’t sell for 500 in a few years.
Njgal,
If you are young and will have a family, Westchester is a good choice. I have a colleague that has four children. Even though they pay high taxes, the children all go to good school. That’s a good deal considering that in other states if the public schools are aweful, the homeowners have to resort to private schools and they cost a bundle.
For people that have grown children, we think the taxes are too rediculous.
On average, no, but in general, there are probably quite a few families that are. It would not be surprising for a middle aged educated couple to be pulling in 200K plus (combined) annually. Esp. in NJ, which has the highest per capita income in the country.
So what ? The median income in NJ is still below $200K. Besides. even someone who makes 200K will be hard pressed to afford a good house in NJ. The fact is that incomes cannot support the housing prices in Northern NJ.
The question posed was 600K means you need 200K in annual income, and whether or not people in NJ make that kind of money.
The answer, for the most part, is yes.
Those that don’t are the ones you see whining here.
The question posed was 600K means you need 200K in annual income, and whether or not people in NJ make that kind of money.The answer, for the most part, is yes.
Nonsense. Go to the census bureau reports and see what the median income in NJ is, then see what percentage of people make over 200K. The answer, for the most part is No, as anyone with 2 brain cells to rub together can figure out.
Those that don’t are the ones you see whining here.
What an utter moron
Even people who don’t make 200K should be able to find reasonable housing. Otherwise where are all those firefighters and teachers going to stay ? And indeed, they could find housing as recently as 4 years back.
Also, your assumption is total nonsense.
FWIW, my personal income (base + bonus) is over 200K, and with my wifes income and stock option sales, my faimly income’s been 400K over this year and last. And I still think NJ is way overpriced.
“The question posed was 600K means you need 200K in annual income, and whether or not people in NJ make that kind of money.
The answer, for the most part, is yes.
Those that don’t are the ones you see whining here.”
Where are you getting your information from? The answer for the most part is no. The median household income in Northern NJ is around $84k per year (one of the highest in the nation). This means that half the households in Northern NJ make less than $84K.
According to the Census Bureau, less than 10% of households in Northern NJ made at least $200k in 2000. Since it’s 5 years later, lets assume that all households making at least $150K in 2000 have moved into the $200 bracket (very conservative assumption since incomes were mostly flat over the last 5 years). Now 17% make at least $200k. So, the anser is no, most people do not make $200k
hi, we have a combine income of over 400K for quite a number of years and we are still whining here.
The fact is that the house prices are absurd. Any body that can do a little math will know that one is throwing money away at these unreal prices.
the median income in even the very wealthiest towns in the NYC metro area is still for the most part way below $200,000. For example, Greenwich is $117,000. Armonk, NY is $139,000. Rye is $123,000.
apologies for not referencing NJ towns, but I’m not as familiar with them. I did find that the median income for Short Hills is $199,000 (only familiar with Short Hills because of the mall). there can’t be too many towns where people have income this high.
also, it’s likely that most of the people who have above median income are older and already own homes. in fact, it seems to me that many of these people will be retiring relatively soon and may be eyeing an apartment in the city or in FL. the point is that it strains reason to say that there is a huge volume of $200,000+ families who are in the market for homes right now.
Condos have historically led housing declines.. Boston is falling.
http://business.bostonherald.com/realestateNews/view.bg?articleid=113327
grim
Also, to find median incomes per town I like to use:
City Data
The medians are given in year 2000 dollars, but you can adjust for inflation by adding a generous 3-4 percent.
grim
Grim,
congratulations for a successful site. Thanks for your time. You have done a lot of good for the people in the tri-state area. Thanks again.
Thanks! Keep the questions coming everyone.
grim
“the point is that it strains reason to say that there is a huge volume of $200,000+ families who are in the market for homes right now.”
Yeah, ok, which is why right in this very comments area you have a newly graduating attorney and his wife about to make 170K (pretty close), another couple making 300K and another 2 families that make over 400K.
Is everyone who lives in Newark or Irvington NJ making anywhere near 200K a year?…probably not, but it falls into the NNJ data and likely skews it.
So it’s not a moronic suggestion. If you can’t afford to live in NNJ – move South.
Not a very complicated solutions. Trains run from everywhere in NJ to the city.
First of all, it is fairly clear that the question applies only to the first time home buyers, or those moving to NNJ from much cheaper areas. Those who have had a house here for the last several years would have enough accumulated equity to make the comparison of incomes and median house prices quite meaningless.
Second, a very large number of Bergen county inhabitants commute to the city, which means that their wages are higher on average than any other place in the US, so $200K per household does not at all look particularly high. I bet everyone who sits in traffic at the bridge every morning makes over $100K.
Is everyone who lives in Newark or Irvington NJ making anywhere near 200K a year?…probably not, but it falls into the NNJ data and likely skews it.
Even in the most expensive towns in NJ, the median household income is almost always below $200K. F. Mountain Lakes median income was $141K in 2000, Alpine was 130K, Essex Fells was $148K, Mendham $110K, Upper Saddle River $127K, Far Hills 112 K. Even allowing for some increase over the last 5 years, median income in most of those places is still very likely below 200K.
Where on Earth are you getting your stats from ?
And how can you just pull out poorer towns from median income ? If you do that, you should also pull out housing prices in poorer towns when you get median housing price.
Heres something that should be obvious even to the mentally deficient. NJ median income has barely kept up with inflation in the last 5 years. Yet, housing prices are up from 50 to 150 % in NNJ.
move South.
Not a very complicated solutions. Trains run from everywhere in NJ to the city.
Do you get your information on trains from the same place you get your income data ? Most of South NJ is not covered at all by trains. There is one line down to Trenton, another down to Bay Head. Many other areas have no train service to the city.
Even in the most expensive towns in NJ, the median household income is almost always below $200K. F. Mountain Lakes median income was $141K in 2000, Alpine was 130K
This is another perfect illuistration of how deceiving these numbers really are. If you are buying a house in Alpine, chances are a very large portion of your income comes from investments. Now interest income on $100K may only add $10K to your overall annual income, but when the time comes to pay for the house, it is those $100K in assets that should be counted.
Second, a very large number of Bergen county inhabitants commute to the city, which means that their wages are higher on average than any other place in the US, so $200K per household does not at all look particularly high.
What nonsense.
1) Bergen County had a median household income of $66000 in 2000, so its very doubtful if median household income now is even greater than 100 K, let alone 200K
2) Bergen County most emphatically does not have higher wages than anywhere else in the US. Even in NJ, Somerset, Hunterdon and Morris Counties have a higher median.
If president Bush in his State of the Union speech a couple of years ago bragged about the affordability of homes to the majoritiy of Americans since he became president,then we should not factor in the people that are making 250,000 or above they are the top 5-10% not the majority.
This is another perfect illuistration of how deceiving these numbers really are. If you are buying a house in Alpine, chances are a very large portion of your income comes from investments. Now interest income on $100K may only add $10K to your overall annual income, but when the time comes to pay for the house, it is those $100K in assets that should be counted.
Most people prefer not to liquidate most of their assets when buying a house.
The affordability index has always been an extremely important metric. Its not perfect, but it gives us a great tool into the housing market. Without entry level buyers, how can the market sustain itself ?
Incidentally, very few people get the bulk of their income from investments.
Bergen County most emphatically does not have higher wages than anywhere else in the US.
I was talking about the commuters.
Most people prefer not to liquidate most of their assets when buying a house.
Actually, today, most people liquidate most of their assets — namely, their previous house — when they buy a new one.
with home ownership at record highs, how many of these $200,000+ families do you think are still looking?
even if there is a large number of people who could afford expensive surburban houses, how many of them want them? the people who typically buy such houses are in their 30’s and 40’s— couples who have or plan to have children. this age group is a shrinking portion of the population.
A large portion of the $200,000+ group are empty-nesters at this point. Are they more concerned with schools and commute-time now, or are they thinking about lower property taxes and better weather?
plus, more rich couples are choosing to raise their kids in the city. you aren’t seeing the massive white flight that you did in the 70’s and 80’s when most of the current occupants of suburban homes established themselves.
of course I’m probably biased in favor of a downturn (or else why would I be reading this site?), but I just do not see enough new blood in the market going forward to sustain these prices.
Actually, today, most people liquidate most of their assets — namely, their previous house — when they buy a new one.
Your original claim was that people who buy houses in Alpine get much of their income from assets and those assets are what should be counted. But your primary house does not give you an income so its not part of those assets that you claim give people who buy in Alpine their income.
In any case, the whole idea of using your previous house equity to buy a new house does not sustain stratospheric price rises because
1) Peoople who are not moving out of the area still need to buy a house and if that house too has appreciated, they can only move up with income gains, risky loans or lower mortgages.
2) If people can’t afford entry level homes, what happens to this ladder.
Your original claim was that people who buy houses in Alpine get much of their income from assets and those assets are what should be counted. But your primary house does not give you an income so its not part of those assets that you claim give people who buy in Alpine their income.
Well, that’s why I wrote two separate posts, to make two separate points :)
To make a long story short, my problem with the median income/price comparison is that it does not take into account transfer of assets. A pretty simple idea, really.
That said, I am still a firm believer in the housing bubble. Why do you think I sold my house in the summer of ’04 and moved into a rental? :)
To make a long story short, my problem with the median income/price comparison is that it does not take into account transfer of assets. A pretty simple idea, really.
True, but historically the median income/price comparison is a reasonable (if flawed) tool to tell us whether the market is overvalued, undervalued, or reasonable.
Transfer of assets has to come from somewhere else. Wage gains aren’t enough to sustain these assets, the stock market is down from 2000 (and the NASDAQ is still 50% down from 2000).
That leaves real estate, but even that has limits, as I said before.
Here you go. This is what drives our local economy (and pharmaceuticals).
http://msnbc.msn.com/id/9968881/
This is why you shouldn’t expect prices to fall anytime soon.
So what if people don’t earn income of 200K a year or not. A Bonus is not earned income, and it constitutes about 1/2 of what people working in finance make.
Let me just throw this thought out..
If big Wall Street and NYC money were driving the Northern NJ market, why have we seen an incredible increase in IO/ARM/Neg-Am (and decrease in traditional) loans? Surely these folks are financially savvy enough to understand mortgages..
grim
And what about areas like Boston? Chicago? California? Phoenix? Las Vegas?
Are the big apple bucks driving those markets?
grim
Here you go. This is what drives our local economy (and pharmaceuticals).
http://msnbc.msn.com/id/9968881/
The drug companies have been laying off people. Pfizer announced they were going to lay off 500 workers in Parsippany this week.
So what if people don’t earn income of 200K a year or not. A Bonus is not earned income, and it constitutes about 1/2 of what people working in finance make.
What’ve you been smoking ? Of course a bonus is earned income and most definitely counts in the calculation of median income. As someone who gets bonuses each year, I can tell you that you most definitely have to pay Medicare taxes (if I hadn’t topped out, I would have had to pay SS as well).
Now let me ask you something. Do you know that the financial sector in NYC is still barely back to the same employment level we had back in 2000 ? That bonuses were down for several years and are now only slightly above e 2000 bonuses. Someone will have to explain to me how this can sustain a 60% housing price rise since 2000.
The median household income in Morris County was $83,583 in 2004. In 2004, Morris County had the third higest income in the country behind 1. Fairfax County, VA and 2. Somerset County, NJ.
There are 8 components to income:
1)Wages, including tips & bonuses
2)Self employment income including
3)Net rental income, dividends, interest income,
4)Social Security
5)Supplemental Social Security
6)Public assistance
7)Retirement income or disability
8)Other (child support, alimony, VA compentation)
So, “income” is defined fairly broadly.
Here is my source:
http://tinyurl.com/bdjbf
Also, most younger first time buyers don’t have many assets to liquidate. After all, we don’t own homes (if we did, we wouldn’t be first time buyers) and we haven’t had mush time to accumulate assets.
If first time buyers can’t afford to buy, who is going to?
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No, but good homes at affordable prices will come to those who wait.
1. ARMs: Arms will start inflating in near future thus forcing homeowners with huge mortgages and lower salaries to sell, because home that was once affordable will become a financial burden. They will try to sell to get rid of the financial burden.
2. Interest Rates: According to Otteau Group, each 1% rise in mortgage rates translates into a 8% drop in buying power. We are only in the first few months of that correction, the prices are expected to drop for the next two years.
3. Property taxes in NJ: It takes a huge chunk out of a home buyers buying power.
4. M&L Scandals: M&L is an abbreviation I created for Mortgages & Loan (HELOC) scandals, which compares to S&L scandals of the 1980s. The appraisals of over inflated home values were not there, but were fictitiously created by mortgage brokers, giving home owners a false sense of belief that their home was worth much more than it actually was. As you might know, banks can recall HELOCs at any time if they think market is not supportive of the appraised values. Thus what’s going to happen – the F word of real estate – FORECLOSURES.
5. New Bankruptcy Laws: With the new bankruptcy laws people will not be able to wash off their debts easily. And people will have to pay off the unrealized home values as debts in years to come. Thus home-owners might try to sell their home, if they are susceptible to interest rate changes to avoid bankruptcy.
6. Gas prices & inflation: Gas prices and inflation (though “technically” under control) has already started to hurt everyone’s pocketbooks.
7. In a lot of cases, realtors are also investors, and what realtors are characterizing as “stabilized” market conditions, is calm before the storm. They want to cash out before the market really crashes.
8. The old fashion way of saving and buying a home will return…. sooner than you think.