Sorry to inform you all, but we are no longer the highest median household income state in the country. According to Census data released yesterday, we’ve lost the top honors to Connecticut.
N.J. loses median income bragging rights to Conn.
Connecticut, with a median household income of $56,409, supplanted New Jersey as the country’s highest wage state in 2003, the most recent year available. New Jersey slid to second, at $56,356, followed by Maryland, Massachusetts and New Hampshire.
The fact that New Jersey had the highest median household income in the country was often used as a rationalization for the bubble prices here. Now, while I may be nit picking over a few dollars, the truth is we can no longer claim that honor when it comes to median income.
Now, granted, those are 2003 dollars and it’s 2005, but I’ll argue wage growth in NJ has largely been unchanged over that period. I asked the question once before, with the median household income in the mid $50,000 range, who exactly can afford to buy a home in New Jersey?
The median family making $56,000 probably doesn’t have $50,000 in savings but let’s say they do. They probably have a bit of credit card debt, say $300 a month and a car payment of $300 a month (hey, I’m being generous here). Figure roughly $700 a year in HOI, and about $6000 in taxes..
Plug that into whatever trusty affordability calculator you use and see what you get. I got somewhere around $150,000 as a top end estimate. So, let me ask you, how are these folks stretching to buy homes? Easy. Use an I/O mortgage, Option-ARM mortgage, or some other Neg-Am mortgage. Maybe they borrowed against their 401K for a downpayment, dipping into their savings every month to make ends meet (and hoping for a huge payout in a year or two). Maybe they bought with a 1.25% teaser IO (like one I heard on the radio yesterday, where the buyer can find themselves owing 125% of the original mortgage amount) not realizing what the heck they were doing. Or maybe they thought they could beat the market, using one of these loans as a high leverage play, hoping to get out before the real payments set in.
Caveat Emptor,
Grim
Just some evidence of our economy in NJ being eviscerated with the good jobs going with it.
High paying jobs evaporating in NJ.
Lucent AT&T Merck Pfizer Schering Plough Bristol Myers Public service all laying off.
Yes Morons are using Option ARM’s to buy a overpriced house. I hope they understand the nightmare they are about to face. Fools fools fools. They all will be whining and pointing the fingers at crooked realtors appraisors builders and mtg brokers as this insanity ends.
I work in the IT department of a global Financial firm and the mood here is gloomy. New construction of buildings in India, wage freezes, harsher performance parameters and so on. But, people keep telling me that houses in North Jersey will always be in demand.
600K for a dump, 10K in taxes and everyone seems to be driving a new car. Ok, I guess I’m living in the dark ages.
No most are are living a phoney lifestyle not supported by rational financial planning. when you are retired these suckers will be greeting walmart customers.
We’re going to see waves and waves of lawsuits against lenders in the near future. Every funny-money mortgage holder is going to be screaming bloody murder about how the lending industry took advantage of them.
Don’t people actually read the contracts they sign? Nah, I’m giving these people too much credit..
grim
I think a lot of people (and i am speaking from personal experience in the mid 20-something’s) are getting a lot of money from their parents. One friend who is getting married just got a house handed to him. Also, with a lot of people living home later in life, they have more of a chance to save some money.
Between me and my GF, we have over 100k saved and make a combined 90+k per year and we still know we can not afford a house. We have NO car payments, and pay 1275 a month for rent in madison. The rent is the best part of this equation because of how much we can save.
If house prices never fall, I will rent for the rest of my life. If you take the difference between renting and owning and invest the difference in a smart way, in the end you will be very comfortable in retirement.
If jobs keep getting downsized or moved to Asia, who’s going to be left? It doesn’t calcuate. There’s no logic. I think things are going to get real ugly in a couple of years.
I agree with you NJresident – the parental money is shocking. I have also seen people get homes from parents. But I think, with the exception of the very wealthy, that may end once the middle-upper class parents realize they their homes are not worth as much as they thought and that they can’t afford to give away the retirement money to the kids.
I know my parents feel bad for my husband and I and others our age, saddled with student loan debt and facing increasing prices. However, I doubt I’ll be seeing any 6-figure handouts. And really, why should I? My parents sent me to college and I emerged debt free, they have helped me out along the way and in law school – they deserve a nice retirement. Unfortunately, a lot of kids nowadays feel entitled and care very little (in fact, they probably think very little) for what their parents lives will be like in 20 years. It’s kind of disgusting.
Hang in there though – my husband and I are also closing in on that kind of savings, make well into the six figures and still can’t afford – but in a year (or more if you choose) we will be able to. Or you can keep that dream rent of yours – wish mine was that low!
my rent is amazing. 1275 for a huge 2 bedroom apartment. it only has 1 bathroom, but it is not bad at all. No tax bill at the end of the year, and heat and hot water included.
I am going to be proposing to her in 3 weeks, and we plan on getting married in summer of 07 or 08 is we can not book the place we want to.
I think 2008 or 2009 will wind up being the year i purchase a home. I hope that prices will have fallen, and people will really be looking to sell, especially the ones who can not afford their martgage payments after the rates go back up.
I hope to spend about 450k for a house and put 200k down (maybe 250k if my car will hold out a few more years). carrying a 200k should not be to bad, even if taxes are fairly high.
Good luck, and i hope “she” isn’t reading these forums!!
Congrats on the proposal and good luck to you! You make a good point about proposing now to be able to book the place for 2007 or 2008 – getting a wedding venue is almost harder than finding a house:)
“600K for a dump, 10K in taxes and everyone seems to be driving a new car. Ok, I guess I’m living in the dark ages.”
seriously… I was over in nice part of San Diego over thanksgiving and there weren’t that many nice cars as here in the NJ.
I guess people now equate lease payment as their monthly car payment. So $500/month will get you a decent BMW on a 3 year lease, whereas I’m stucking paying $440/month on my v6 Accord for next 5 years.
I live in Cliffside Park, where illegal renting is rampant, and you wouldn’t believe how many luxury cars I see streetparked, because the owners are probably renting and cannot park their $60k babies on a drive way.
Some people need to get their priorities straight. I wouldn’t dream of getting a $60k car unless I made at least $250k.
The mirage will all come to an end for many. A mirag lifestyle they do not have the cash to fund.
The economyis one big debt ponzi. It will unravel as prudence and thrift will be rewarded not punished.
I also know a lot of people whose parents basically pay all of their living expenses, even though they’re in their late 20’s.
on top of it, these people have high paying jobs. sometimes it seems that parental help could be explaining a lot of the prices in NY, but then I think that these people are universally in the top 1% of wealth in the U.S. It seems impossible to me that the upper 1% are driving a rally as broad as this one. these people aren’t living in Jersey City
njresident – you seem to be one of the few that have it together, and things in proper perspective (you to NJgal!). Most people are not thinking about retirement (not at age 30) – they are thinking about that dream wedding they ‘deserve’, the coach bags and ipods they ‘deserve’, the new car that they ‘deserve’, and lets not forget the house. Credit has made it possible, and my generation is swimming in it. I have been speaking to some people a bit older than me – with 2 kids, a house, etc. Life is NOT easy for them, even though they bought back in the 90s. Thanks everyone on this blog!
just a quick note.
I have a good friend who makes 50k a year working for PSE&G doing finance.
he lives home, only pays cell phone and his gym membership. he had been working for 1 full year, when he HAD TO BORROW 3k from another friend of our to put down on his new M3.
His payment is over 700 a month for the car, plus over 600 a month for insurance.
He is laying out about 1400 a month to pay for this car, while living in his parents house.
BTW, he went to school and majored in finance.
Would it be interesting to know, how many people in NJ are first-time buyers? 5%? 20%?
Isn’t it pretty clear that MANY people live in houses they bought 5 and more years ago when their earnings were somehow comparable with home prices? Buying a home here is a problem only for those who didn’t make it years ago. Others make their $800-1000/month mortgage payments for houses, which is not problem for median-income houshold. If they didn’t sell any equity, nothing will force them to sell.
So, it would be very interesting to take a look at the numbers telling us something about average/median debt assosiated with mortgages compared with current home prices.
it’s hard because for a lot of people these days, going into high debt is the only way to get ahead. for example, I will have about $200,000 in education loans by the time I finish law school this year.
when you get used to borrowing so heavily from such a young age, it becomes easy to say, “Oh, I’ll just borrow another $30,000 and get a nice car. I’m already in the hole a quarter million anyway.”
many people become confused and start to think that the appearance of wealth = wealth
anyway, I’m not planning on falling into this trap, but it’s easy to see how it happens to a lot of people like me
Jesus skep-tic, has law school gone up that much since I graduated 4 years ago? I took out private and gov’t loans and left with a bit over 100K in loans when you count interest. The only way I’ve benefited from interest rates is that my gov’t ones are so low (4%, and I know folk with loans around 1%). 200K is ridiculous. How, even with a big firm job, do they really expect people to pay that?
Loans – the thing that makes me encourage anyone who asks me about law school to seek a different career!
PS – transmissionfluid, you have described my sister! She gets very mad when remind her to save, not buy expensive purses, etc. She does pay her rent and what not, but life would be much easier if she could distinguish between need and want (not that we all don’t have that problem at some point or another:))
my friends mother tells him (and me when i am aronud) that if you are not in debt you can not be happy, because when you have debt you have things. And things make you happy. She owns 2 homes, 1 is a shore house with 2 boats, jets skii’s and new cars. some nights she has to borrow money from my friend to pay for groceries until the next paycheck comes.
I would also add that given that both education and housing costs have risen at multiple times the rate of inflation for my entire adult life, many people my age simply expect that high debt is a fact of life at this point
I would think that this psychology has a lot to do with the current boom, at least among first time buyers
njgal
your sister and mine sound EXACTLY the same. people who know us both are shocked we are both from the same parents.
to break it down for njgal– I have about $30,000 in debt from undergrad, and will have about $170,000 for law school.
tuition this year is about $40,000. If you add on $20,000 a year for living expenses (which is modest), you can see how this adds up fast.
I agree with skep-tic
my college tuition at a NJ state school (NJIT in newark) went up at least 10% per year while I was there).
If you are 25 or under, you have lived an entire life of cheap and easy money with huge % gains on most of the stuff you use on a daily basis.
Gas was under a dollar when i was 17 (in 1998) and was over 3 dollars when I was 24.
Njresident, we are most definitely going to be picking up this tab!
Skep-tic, I can’t even believe that in only a few short years law school tuition has gone up that much. I shouldn’t be surprised though, as my college tuition was 25K whereas my sister’s, only 3 years later, was 40.
The idea that you can’t be happy and not be in debt is exactly the mentality that’s fueling this bubble and ruining the U.S. overall. It’s all about things. And while I admit to liking things as much as the next and spending on useless stuff, I think I’d be pretty empty if that’s all I had in my life.
NJresident, my sister got MAD when I suggested that we not do Christmas gifts this year and instead make a donation to a good cause. Actually angry. I would understand if she was 10. But she’s 26. Amazing.
I am pretty disgusted by the Christmas season at this point. Watching people fight over stupid laptops and whatnot. It’s disgusting.
My wife and I didn’t give each other presents last year. We’re not going to this year either. Guess what? Christmas still happened and we still love each other.
we are due for a major cultural correction along with a price correction. I never saw my grandparents buying superfluous crap. does anyone’s grandparents’ house have a “bonus room?”
I think once baby boomers start to wane as a cultural force, we start to return to responsible values
skep-tic said…
I am pretty disgusted by the Christmas season at this point. Watching people fight over stupid laptops and whatnot. It’s disgusting.
My wife and I didn’t give each other presents last year. We’re not going to this year either. Guess what? Christmas still happened and we still love each other.
Enough said Skep-tic, I am not doing Christmas presents this year myself. I am putting myself on a budget so I can pay down my existing debt, and then I can put away more money.
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Would it be interesting to know, how many people in NJ are first-time buyers? 5%? 20%?
That is a very interesting question. I have really been thinking about this lately. If you look at the population growth statistics for NJ’s, it’s being driven births and international immigration. Internal migration is negative, meaning that more people move from NJ to somewhere else in the country than from other places in the country to NJ. This means that most people purchasing a home in NJ (excluding those moving within the state) must be first time buyers (at least on a net basis) with no home equity to roll over from a previous sale. As crazy as RE is in places like Florida and Arizona, you can at least see a situation where people from the NY metro area “cash out” and bring a fat check along with them when they move to those states (pricing out the locals). But where is the money coming from up to continually pump up RE here?
It’s funny you bring tat up. I read an article a couple months ago talking about that very topic. You have to be an exec that has a pretty fat paycheck which corresponds to the earlier piece on layoffs. It is too expensive for companies to do business here do to relocation costs and there execs saying Im going to NJ and all my money gets is this?
Merck announced the first of its set of job cuts. 235 jobs gone in the Rahway plant. Actually, the plant probably got off a little better than I expected — I thought it could be shut down.
More cuts coming down the pike. I have friends working there. This is bad news.
“I wouldn’t dream of getting a $60k car unless I made at least $250k.”
wouldn’t “dream”?…if someone earns between 100k and 250k and can’t “dream” of affording a 60k car..they must have some crazy spending patterns..or a massive coke habit.
Slightly back on topic….
Remember that the median income figure of $56,000 also includes legions of tax receivers of Newark, illegal landscapers in Freehold, and retirees in Ocean County.
These folk will never be looking at McMansions or riverfront condos in Edgewater.
There may be a finite supply of 90-hour-a-week I-bankers or kids getting endowments by the Dad Bank & Trust, NA (here in Hoboken we have both species), but they are still out there and still willing to dump their chump change on what the rest of us consider overpriced residences.
Njres, congragulations. It is very heartwarming to hear young people like you and Njgal speak so pragmatically about finances, looking as far as retirement, cautious about the needs vs wants traps, not getting obsessed about looking wealthy, etc. etc. It is even more a pleasure that your significant halves also think like you. I am rasising mine also to be like what you are, I hope they will also choose partners like you did.
We dont do gifts religiously in the family either. Gifts are just spontaneous, somthing nice picked up for someone suddenly – a CD, a watch, a book, a shirt etc. No ‘expected’ gifts as on birthdays, anniverserys, christmas etc. Gifts are supposed to be surprise, right ? Expensive stuff is all about what we really need – computers, TVs, cameras etc.. They never come under the gifts category, they are all well-discussed joint decisions. For birthdays and other festivities/celeberations it is always grrreat and lotsa food and more food, lotsa extra laughs and hugs, but no ‘gifts’.
“live small and think big”
“wouldn’t “dream”?…if someone earns between 100k and 250k and can’t “dream” of affording a 60k car..they must have some crazy spending patterns..or a massive coke habit.”
I and my wife earned/will earn over 400K last year and this year (and even in a bad year, its north of 275K). We own only one car, a low end Ford, and we bought it new for around 14k in 2001.
Its all a matter of personality. I don’t feel I need a 30K car or SUV, let alone a 60K car.
that’s just sad…reminds of that guy who was on dateline or one of those shows..He is a millionaire and shops at second hand stores, gets his furniture by picking through items out at the curb..drove around in some piece of junk..and was walking around in clothes he bought for about 10 bucks…all so he could stare at his bank statement like a mental patient…life is way too short for that nonsense..
I think you just need to ask what people are trying to prove by buying Mercedes and McMansions they can’t really afford (and I don’t personally think that just because you can meet the monthly payments that you can “afford” it).
The miserly guy you describe is an extreme case, but I think that most truly wealthy people don’t spend frivolously. I understand wanting to have nice things, but a lot of this stuff is really just ego-boosting.
“if someone earns between 100k and 250k and can’t “dream” of affording a 60k car..they must have some crazy spending patterns..or a massive coke habit.”
Sigh! we have come a long way with internalising consumerism. When someone lives sensibly as a he becomes highly suspect – “must be something terribly, terribly wrong there”. I would call him a miser who wont spend on needs – and certainly there are those – who wont spend enough even on food, decent (not necessarily expensive) clothing, heating, etc. But one who wont spend on wants is just austere. What is wrong if Bill Gates decided that a Ford Escort was good enough for him ? Does not sound crazy to me.
“I think that most truly wealthy people don’t spend frivolously.”
….Funny..Every wealthy person I’ve ever met seems completely determinted to live a frivolous and meaningless existence.