From USA Today:
Bergen County, N.J.: High-priced insanity levels off
Home prices in Bergen County, N.J., across the Hudson River from Manhattan, are still falling — or coming back to earth, as would-be buyers might say. And that means the spring selling season should be better than last year’s.
During the real estate boom, prices in Bergen County rose with mind-boggling speed. As bidding wars raged, buyers would sometimes make offers on houses they’d never seen, just to get into the market, recalls Karen Murphy, branch manager for Coldwell Banker in Tenafly, a town in Bergen County.
“The market came to a screeching halt in November 2005, and we were seeing the effects in January and February of 2006,” Murphy says. “Buyers just said, ‘No, we’ve had enough.’ ”
Homes languished on the market until sellers had no choice but to cut prices. This year, the supply of homes for sale is down, and open-house traffic is up. But prices remain weak, especially for homes priced over $1 million.
From the Chicago Tribune:
Which caved first, economy or real estate?
Recent data concerning mortgage delinquencies and home foreclosures has created a chicken-and-egg question about the current housing scare.
Has a soft real estate market weakened the economy, or did economic weakness hurt the real estate market?
Both cause-and-effect relationships might exist at the same time, in what economists call a vicious cycle. But the prognosis for investors and economic policymakers is different, depending on how you look at the problem. The latest evidence suggests that, once again, it’s the economy, stupid.
…
These are states with lukewarm levels of house price appreciation during the so-called housing bubble. “The states that are now experiencing the highest mortgage delinquency rates are the ones where the previous real estate appreciation had been the most modest,” Hamilton writes on EconBrowser.com.
You get a better fit if you match state delinquency rates to state unemployment rates, he found. Likewise, economist Michael Englund of ActionEconomics finds that the mortgage bankers’ data track closely with business inventories by state. Higher business inventories indicate higher mortgage delinquencies.
February data on home foreclosures released Monday by RealtyTrac strengthen Hamilton’s and Englund’s conclusions, though the hot real estate states of Nevada, Colorado and Florida have joined the high foreclosure rankings.
JB: When is the next GTG?
Here’s a real gem that I’ve never seen posted or discussed here…it comes from Bill Gross, the “King of Bonds”, at Pimco. Try to guess when this was written…you’ll be amazed:
Pimco Fed watcher Paul McCulley quotes some intriguing insight from his boss, bond guru Bill Gross, into how the housing market works …
“The Plankton Theory, like life itself, begins and ends in the ocean. Plankton, of course, are almost microscopic organisms that serve as food for higher life forms. Without plankton almost every fish and mammal in the sea could not survive, since most species depend upon other fish for their existence and plankton are the initial building blocks of the entire process. Logic would suggest, therefore, that in attempting to forecast the well being of the Great White Whale, Jaws, or even Jaws II, that one of the factors to consider would be the status and future outlook of the plankton. That, in one hundred words or less, is the Plankton Theory.
Now, what possible significance could this have for the investment world? Plenty. Take for example, the area of real estate, especially that of single family housing. We’re all familiar with the rapid escalation of home prices over the last 10 years. For most Americans, their homes have been the best and in many cases the only investment that they have made in their entire lives. Some have gone so far as to invest in several homes and have endured ‘negative carry’ on the cash flow in anticipation of leveraged capital gains a few years down the road. But where does it stop? Can housing continue to increase at twice the Consumer Price Index for the next 10 years?
One way to measure might be via the Plankton Theory. In the case of real estate, the plankton would be the first-time buyer (perhaps a young married couple) with a desire to own their own home but with very little capital to carry it off. When the time comes that they can’t pull it off – either through an inability to come up with a down payment, or to service the monthly mortgage – then the ‘plankton’ would disappear and the rapid escalation in housing prices would ease as well. For, unless the current homeowner has someone to sell his house to, he’ll be unable to afford the house with the view or that extra bedroom, and the process would continue into the echelons of Beverly Hills and Shaker Heights. In the end, the entire market would wither on the investment vine and home prices would stop increasing at the same rapid rate. So to gauge the health of the housing market, look first at the plankton. Without their presence and financial vitality, the market’s not going to repeat the experience of the past 10 years.”
Gross wrote that in August, 1980.
Clot: As mentioned first time buyers are the key to the market. I wonder if there is chart available that shows Home sales to first time buyer.
During the boom time, folks used to be just buy bigger house without any worry on selling their current house. Now they do. No one wants to move up till they sell their current home first.
BTW those Open House signs over the weekend need some overhaul. Anyway to lure buyers in the house.
Yeah, I’ve thought about that one often over the last few years. I think that’s where the Soylent Green theory takes over.
We’re past the Plankton. The plankton is no more. It has ceased to be.
We’ve slaughtered it, and now we’re left with making Soylent Green – digesting the lower/middle class itself to keep the party going.
Ooh, I think I’m turning into a card-carrier.
Clot I like it
-Co-Op Chum
Soylent Green…is…people!
What an all-time classic. And, an apt RE metaphor to boot.
From Bloomberg:
Lennar’s Profit Falls 73% as U.S. Home Demand Wanes
Lennar Corp., the largest U.S. homebuilder by revenue, said earnings plummeted 73 percent in the fiscal first-quarter as demand waned in the worst housing slump in more than a decade.
Net income for the three months ended Feb. 28 declined to $68.6 million, or 43 cents a share, from $258.1 million, or $1.58, a year earlier, the Miami-based company said today in a statement. Lennar said it will likely miss its 2007 profit forecast as the normally stronger spring selling season had not materialized.
“Given the state of the market, we do not expect to achieve our previously stated 2007 profit goal,” Chief Executive Officer Stuart Miller said in the statement. “We are not comfortable providing a new earnings goal at this time.”
The biggest drop in U.S. home sales since 1990 is battering the building industry. Profit is falling as the inventory of unsold homes swells and companies increase incentives to entice buyers. As foreclosure rates rise among borrowers with poor or limited credit histories, builders now face the prospect that even more homes will come onto the market.
From Bankrate:
34 percent of homeowners are clueless about their mortgage
the survey conducted by Gfk Roper, homeowners with mortgages were asked what type of mortgage they had. A stunning 34 percent of the homeowners had no idea.
“That’s a symptom of the complexity of the mortgage market today,” says Ken Wade, chief executive officer of NeighborWorks America, a nonprofit organization that provides financing and training to neighborhood-based housing organizations.
A generation ago, mortgages were made primarily through banks. Today there are many more types of organizations making mortgage loans, some of which are less regulated than banks. Adding to the confusion is the variety of loans now available to borrowers. “There is a proliferation of new products that come on line just about every week, and I think it creates confusion among consumers,” says Wade.
I agree with the plankton theory as I’ve seen it in action and was a plankton when I bought my first house when I was the “young married couple.”
I have not been to a starter home open house in a long time. What’s the traffic like? Are the plankton still around?
The houses I’ve been too in the 600-1M range have been pretty busy. A few are selling after a price drop and a few weeks on the market.
What do people that move from the south think about NJ? You can buy a great house for $300-$400K in the south, that gets you absolute crap in NJ. What if you’re moving from a south starter, $150K? I guess those people aren’t moving to NJ.
Is there an echo in here?
[9],
….and the Bailout in the Buckeye state starts with the floating of the bond issue next week.
“Japanese investors, the biggest overseas holders of U.S. Treasuries, sold more bonds abroad than they bought in eight of 11 weeks this year, according to the Ministry of Finance.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aYojKKNmT8ew&refer=home
From Reuters:
North Carolina law firm files suit against Beazer
North Carolina law firm has filed a state lawsuit seeking class action status against Beazer Homes USA Inc. (BZH.N: Quote, Profile , Research), accusing the home builder and its mortgage company of selling mortgages to unqualified buyers.
The lawsuit was filed on Friday in Mecklenburg County Superior Court on behalf of Mark and Lea Tingly, who bought a newly constructed home in the Southern Chase subdivision — with houses built for first-time buyers — in a nearby county.
Although the lawsuit states other class member have not been identified or named, it said Beazer Mortgage “would advise or encourage the prospective buyers to falsify information set fourth in their respective loan applications.”
The lawsuit also said the company “changed the information set forth on the loan applications by the prospective buyers,” in order for the prospective buyer to qualify to buy a home in the Beazer subdivision.
From BusinessWire:
CRL Finds Subprime Lending Leads to Drop in Homeownership
As foreclosures mount in the ailing market for subprime home loans, some lenders argue that reining in subprime lending will put a damper on homeownership. As it turns out, the subprime market hasn’t contributed any net gain to ownership, but in fact has been a net drain.
According to a new analysis by the Center for Responsible Lending, subprime loans made during 1998 through 2006 have led or will lead to a net loss of homeownership rather than a gain in every one of those years.
Updating our December projection of the number of subprime home loans that will foreclose from 2.2 million to 2.4 million after fourth quarter 2006 numbers, we find that many more families—almost one million—will lose their homes than will become new homeowners.
“Homeownership has been thwarted rather than supported,” said Mike Calhoun, CRL president. “There’s a difference between increasing access to home loans and expanding home ownership.”
This point will be a key part of testimony presented by Calhoun today as he testifies before the US House Committee on Financial Services, Subcommittee on Financial Institutions and Consumer Credit. Calhoun also will commend federal regulators for tighter requirements they proposed in the March 8 Proposed Statement on Subprime Mortgage Lending, and offer policy recommendations for helping homeowners harmed by subprime loans now and in the future.
I think I had said some time ago, my personal experience has been that the only buyers I/or associates were finding were either contingent ( need to sell to buy) or 100% financing, we have since seen at least 3-4 100% financings & the contingent client just lost the home they were buying -unable to sell their own overpriced home. I have very few solid first time buyers.
Yes this is anecdotal and a small picture, as I am a bit player but….
KL
BC Bob: In finishing our conversation form yesterday, with lending standards tightening, and sub-prime exploding,
and spreading, who do you think will be able to buy, or will buy houses over the next year or so, if we do nto see see some very significant price reductions.
From the Asbury Park Press:
Bank hit by mortgage defaults
KL,
………but, you are on to something.
NJ 2005 Subprime Loans by County:
http://www.app.com/assets/pdf/B366055315.PDF
jb
Yes this is anecdotal and a small picture, as I am a bit player but….
Makes me wonder about what kind of impact we’re going to see on the market if regulators tighten the screws dramatically, or the market loses it’s appetite for high LTV loans.
jb
JB,
Do you really need to wonder? I think you know the answer. :)
This year, the supply of homes for sale is down, and open-house traffic is up.
As I’ve said, the slump is over here but just starting for the majority of the Nation.
# gary Says:
March 27th, 2007 at 9:05 am
This year, the supply of homes for sale is down, and open-house traffic is up.
As I’ve said, the slump is over here but just starting for the majority of the Nation.
The slump is over?? Do you really eed to sell that bed?? Look at realtor.com – all he houses from last summer are still on the market. Nothing is selling – not at thoe prices.. yea the slump here is over!!!
bbb [17],
IMO, only the printing presses.
Ooh, the soylent green reference…not good for first trimester NJGal. Blech.
As a first time buyer, I am well aware of my plankton status. I’m in a slightly different position, because we’re lucky enough to be able to afford a home that’s not a starter house, so we don’t have to leave if we can’t. But let me tell you, I would MUCH rather have a small starter house to get my feet wet, so to speak. I wish I could find a small cape that was reasonably priced, enough for a young family, that we could leave in 7 years or so without totally losing our money on. But I just think that’s not possible, when the “starter” homes are 550-650. It’s a real shame, because I have friends who can’t even afford those starter homes but would love to buy. Without the starter home market, I am afraid for the rest of the market.
Gary,
If you keep looking in the rear view mirror you may miss the freight train just ahead.
Al,
I’ve been told by those in the industry not to expect much change. I’m starting to believe them. Maybe in Ohio or Michigan or Florida but not here.
My cousin is an attorney who specializes in closings. She said don’t expect a big reduction. Maybe flat prices or a slight decline but no real slide.
BC Bob,
If the sh*t hits the fan I’ll be the first to gladly admit I was wrong.
Gary,
99% of the stocks that anaysts were covering, dot com, did not have a sale recommendation next to their name within 2 months of the end of that era. Why would you expect “those in this industry” to be any different?
28 Gary,
People rarely get what they expect, they uually get what they deserve. To paraphrase Bill Bonner
Gary,
Just be patient. It’s not the grain markets in the middle of a drought. It’s more akin to watching grass grow.
#24
It is a bloodbath because most sellers refuse to accept reality. They let emotions get in the way when pricing their home. Also, from personal experience, the majority of realtors are in left field also regarding pricing homes correctly.
As clot and others who have sold their homes recently (including me), there are homes that are selling.
The key is pricing it correctly. If your home is in move in condition and it shows well (and you are competively priced, you will sell your home!) You will not get what you could’ve two years ago, however you will still make a killing like I did (I purchased over 5 yrs ago)
I just received notice of system changes that will be happening at Chase Hoem Financer B-C. Credit tightening going on. If I have time later, I’ll post. I don’t see how this won’t affect the market. The pool of prospective homebuyers is being shrunk by all the lenders
Sorry,
Chase Home Finance B-C
Buyers in the sub 500k range may have said “no, we’ve had enough” but there are still some 500k-900k buyers out there who still can’t get enough. Very few sales to go by, but sales I am seeing esp. in the 700-850k range are 10%+ over peak prices. I can’t explain it.
It only serves to boost the confidence of other sellers who have been sitting on their homes for sale for months. Hold out folks, there are still buyers willing to spend out there. Be patient and you will find yours.
If this continues through the end of spring, I think we are dealing with two different segments of the market. First time home buyers looking for starter homes will continue to sit out but buyers who can afford to spend over half a mil but are looking for more bang for their buck may have to capitulate and accept what they can get – POS Cape Cods with a second story added for a perfectly rectangular box of a home with minimal yard but a 2×8 granite counter top in their much too small kitchen.
BC Bob,
What are the futures markets saying this morning about the possibile direction of rates?
Before this latest meeting, I read something somewhere about how the markets were predicting a 40% chance of a rate cut in August – I think because of the deteriorating subprime market.
Are the markets now showing more of a stance that the Fed will hold firm through the summer?
I take it the possibility of another rate hike isn’t there anymore.
“The pool of prospective homebuyers is being shrunk by all the lenders”
X [34],
Like sailors cleaning the decks. I think we should start calling RE,[2007-2010] the Mini-Me Market.
(31)
I like that expression!
This year, the supply of homes for sale is down, and open-house traffic is up.
Supply is down compared to what? Sure, supply is down compared with last summer & fall, but that is because listings expire in the fall and sellers typically give up for the winter, waiting to relist in the spring. Supply is always lower this time of year. YOY supply is up.
JB’s very well done chart tells it all:
https://njrereport.com/images/feb07_salesinventory.gif
If we look at where we are today, I think we will easily set new records for inventory in 2007.
Seneca (36),
Exactly what I’m talking about. It’s fierce and it’s going to take a heck of a lot to stop that 700K plus crowd. They want the CHC in Upper Somewhere, NJ even if they have to beg, borrow or steal.
RentingInNJ is correct. Inventory for SFH in Bergen County are down compared to last year but WAY above 2004 & 2005.
For March 1st
2004 2005 2006 2007
2,296 2,331 3,498 3,398
Supply is down compared to what?
They are just playing games by comparing non-seasonally adjusted data across months (a no-no unless the reader clearly understands the seasonal trends).
jb
Rich,
From GSMLS:
Bergen
For February 1st
2004 2005 2006 2007
744 750 1150 1339
NJGal..sorry about the blechs. I remembered somebody brought this theory up a few weeks ago and nobody got green then, but now with baby on blog, things are different!
Are you going home and collapsing on the sofa asleep yet?
I’ve got different NJMLS numbers, but I’m looking at SFH, Condo, Coop.
March 15th, 2006 – 4,606
March 14th, 2007 – 5,069
#26
NJGal, excuse me but I’m not sure I follow you here. You’re saying that you can’t find a starter home for less than 550-650 in NNJ? How many kids do you have? Are you looking for 3BR/2BA?
My point is, if I think we’re on the same page, there are plenty of homes that I can find that I consider “starter” in the 350-400 range…Maybe your sights are a little too high?
James- What is the inventory #’s for March 1 YOY for existing SFH only?
Which system?
jb
NJMLS and GSMLS if it wasn’t too much trouble…ty
Gary with all due repsect why is your closingt he closing attorney’s opinion better than what you hear here. he expects prices to be flat or down slightly, based on what?
I ahve a firnd who only does real estate transactions, and he is dead in the ater as far as closings. Were it not for the fact that he is the attorney for a lot of co-op boards, and condo assoications he would be in trouble.
On the other side I have a firen who ismainly trusts and estates, with a small closing business, and he is extemely busy with deal closing deals;he does tell me that soem will definitely not close.
By the way, what happened to the bottom/stabilization towards the end of 2006, early 2007? Some say bottom, others say dead cat bounce. You can call it anything you want.
I say when the retracement fails, there may be trouble ahead.
http://bigcharts.marketwatch.com/interchart/interchart.asp?symb=HOV
JB / Homeseller,
SFH down slightly compared to last year but Condo, Co-op, Twnhs is up
March 1st Y-O-Y
SFH
2004 2005 2006 2007
2,296 2,331 3,498 3,398
Condo, Co-op, Twnhs
2004 2005 2006 2007
910 903 1,447 1,582
SFH, Condo, Co-op, Twnhs
2004 2005 2006 2007
3,206 3,235 4,945 4,980
I use the first of the month as the numbers will always fluctuate.
Last year was about inventory, this year will be more about price and then inventory. I feel the inventory numbers no longer need to climb (they’re still high) in order for prices to drop. Other forces are now coming into play, psychology (of the housing market and economy), sub-prime fallout, tightening lending standards, etc.
Rich
JB, great data on subprime % by county. Do you have more granular data within the counties? If so could you post or email me Essex data.
Thanks Rich- I wanted to get a true gauge of inventory because existing SFH’s have the lion’s share of transactions….
We will have to see several more months of YOY’s IMO to get a more accurate gauge where inventory #’s are heading…
JB / Homeseller,
SFH down slightly compared to last year but Condo, Co-op, Twnhs is up
March 1st Y-O-Y
SFH
2004 2005 2006 2007
2,296 2,331 3,498 3,398
Condo, Co-op, Twnhs
2004 2005 2006 2007
910 903 1,447 1,582
SFH, Condo, Co-op, Twnhs
2004 2005 2006 2007
3,206 3,235 4,945 4,980
I use the first of the month as the numbers will always fluctuate.
Last year was about inventory, this year will be more about price and then inventory. I feel the inventory numbers no longer need to climb (they’re still high) in order for prices to drop. Other forces are now coming into play, psychology (of the housing market and economy), sub-prime fallout, tightening lending standards, etc.
Rich
At what point does the “spring selling” season wind down (i.e. if you haven’t sold by this point you are in trouble)?
JB / Homeseller,
SFH down slightly compared to last year but Condo, Co-op, Twnhs is up
March 1st Y-O-Y
SFH
2004 2005 2006 2007
2,296 2,331 3,498 3,398
Condo, Co-op, Twnhs
2004 2005 2006 2007
910 903 1,447 1,582
SFH, Condo, Co-op, Twnhs
2004 2005 2006 2007
3,206 3,235 4,945 4,980
I use the first of the month as the numbers will always fluctuate.
Last year was about inventory, this year will be more about price and then inventory. I feel the inventory numbers no longer need to climb (they’re still high) in order for prices to drop. Other forces are now coming into play, psychology (of the housing market and economy), sub-prime fallout, tightening lending standards, etc.
Rich
PS Maybe a tip jar ala Calculated Risk?
JB / Homeseller,
SFH down slightly compared to last year but Condo, Co-op, Twnhs is up
March 1st Y-O-Y
SFH
2004 2005 2006 2007
2,296 2,331 3,498 3,398
Condo, Co-op, Twnhs
2004 2005 2006 2007
910 903 1,447 1,582
SFH, Condo, Co-op, Twnhs
2004 2005 2006 2007
3,206 3,235 4,945 4,980
I use the first of the month as the numbers will always fluctuate.
Last year was about inventory, this year will be more about price and then inventory. I feel the inventory numbers no longer need to climb (they’re still high) in order for prices to drop. Other forces are now coming into play, psychology (of the housing market and economy), sub-prime fallout, tightening lending standards, etc.
Rich
(Argh! This site is…! How about a tip jar ala Calculated Risk?)
“Are you going home and collapsing on the sofa asleep yet?”
Every single day. My husband claims I have a sleep addiction. It’s becoming ridiculous. Thankfully, it’s been my worst symptom so far.
“NJGal, excuse me but I’m not sure I follow you here. You’re saying that you can’t find a starter home for less than 550-650 in NNJ? How many kids do you have? Are you looking for 3BR/2BA?
My point is, if I think we’re on the same page, there are plenty of homes that I can find that I consider “starter” in the 350-400 range…Maybe your sights are a little too high?”
First of all, I stopped looking in NJ – I’m sure there are places where I could find this, but not towns I want to live in – maybe that means my sights are set too high in terms of location and type of home and what have you, but so be it. I do happen to have certain types of homes I will and will not live in, but it’s a matter of taste and style and I’m not compromising to the extent I end up in a 1960s split level in a town where I have to take the bus to NYC. I’d rather rent than buy something I hate in a town I don’t want to live in.
My point is really that those “starter” homes you are talking about shouldn’t be 400K, not in the locations that they’re in. Values rose everywhere, not just in desirable towns. If you buy a starter for 400K in a middling town, will you be able to sell it for that amount if houses slightly above that range drop in price? My guess is no, and if you lose on your starter home, it’s tough to recover.
We are moving to Northern Westchester, NY, 4bed/2.5 bath, on an acre by the way – even with a long train, the train is more dependable than NJ transit, and it’s closer to family and offers the rural/suburban lifestyle for us and our big dog, and the baby we have on the way. Plus, we’re both lawyers, and will both keep working – we may need room for an au pair to live with us. A starter home doesn’t offer that.
Here is a general question for the group. The news coverage and congress are focusing on the “poor old woman” stories to explain the subprime collapse, but how much is do to flippers and rampant speculation. Did flippers mostly use Alt A or subprime mortgages? I would guess that inexperienced flippers with 4 or 5 properties all bought with ARMs are a big part of the problem.
gary Says:
They want the CHC in Upper Somewhere, NJ even if they have to beg, borrow or steal.
It’s now getting harder to beg, borrow, and steal. We might still have a lot of traffic going to the open houses and siging contracts. The changes being implemented by the lenders in the last few weeks won’t begin to show up for a few months though.
Just wait until its a week before closing date and the borrowers can’t get financing.
Sorry for the multiple posts… but everytime the screen refreshed there was nothing there but the previous post form BC Bob at #52.
I’d delete the postes if I could.
#60
NJGal,
ok I just wanted to clarify that your sights are set very high. When you make a statement like “we cannot find a stater home for less than 550-650”, you were just talking about your personal tastes. There are plenty of starter homes in ‘middle class’ towns in the 350-450 range…(ie Clifton, Totowa, Wanaque, etc..)
If you choose not to live in those towns (as an example) that is ok…
I certainly can find a perfectly pleasing starter home in the 350-450 range which is fairly close to NYC
Sorry but I don’t think $450,000 qualifies as a starter home.
You need an income of roughly $145,000 – $180,000 to afford a $450,000 home with 20% down.
However, $350,000 is a bit more realistic, with an income requirement of approximately $115,000 – $140,000.
jb
I was told by a realtor couple years ago that it is 8/1 for most NNJ towns. It is because it is the deadline to register your children for the next school year. Plus i was told that everyone would be on vacation in Aug, transaction is very slow after 8/1.
CC
My “rule of thumb” on affordability is to take out a mortgage no more than 2 to 2.5 times yearly income at time of purchase.
If you want to purchase a home more expensive than the “rule of thumb” dictates, just increase the downpayment until the mortgage amount falls into range.
Too conservative? You bet, but take solace in the fact that you aren’t signing up for a lifetime of debt servitude. No worries about household repairs, retirement funding, putting the kids through college, or a midlife crisis car, etc.
jb
James- I agree that 450 isn’t realistic, but 350K is…..
If you have two people making decent money and who’ve been financially savy in their 20’s/early 30’s, you can find a starter home to work for you in this area…like everything else, it will be difficult to get ahead, but that is no different than when I tried to buy my home several years ago. Life is about choices and couples do have a choice also to either keep renting and hope prices come down further, OR relocate to a less expensive part of the country.
There is no wiggle room living in the NNJ area. If you don’t budget and watch your expenses, you will never survive here…
James- I agree that 450 isn’t realistic, but 350K is…..
If you have two people making decent money and who’ve been financially savy in their 20’s/early 30’s, you can find a starter home to work for you in this area…like everything else, it will be difficult to get ahead, but that is no different than when I tried to buy my home several years ago. Life is about choices and couples do have a choice also to either keep renting and hope prices come down further, OR relocate to a less expensive part of the country.
There is no wiggle room living in the NNJ area. If you don’t budget and watch your expenses, you will never survive here…
JB,
$145,000 – $180,000 probably can better than $450,000 with 20%down.
$145,000 – $180,000 can afford 3400 – 4200 for monthly RE payment per 28/34 rule. (3400-4200 is the 28% of 140k-180k). With 900/month for property tax + insurance. They can spend 2500 – 3300 for mortgage payment. For 30yr fixed jumbo at 6.3%, that is about 400k – 500k mortgage. If they can come up with the 20% downpayment, they should be able to afford 500k – 600k.
I hope my assumption is correct.
CC
I’m plankton. (Well, my wife and I…)
I’ve never really given an introduction on here, but basically, I’ve been working full time during the day and going to night school since I graduated HS in 1999. Met my now-wife senior year. We both graduated college in 2004, (I took an extra year since I was doing night school, she a year younger than me attending full time undergrad on a very generous parents dime.)
I’ve always maxed my 401(k) at the jobs I’ve been at, I don’t live beyond my means but I spend money on things I enjoy. I don’t make a killing and for the last 3 years my wife has worked not-for-profit, so while we do “well” compared to most people in the world, we’re solidly lower-middle class and we’re fine with that.
That said, after the wedding, credit card bills paid off, etc. last year, we’ve managed to sock away about $35,000 for a downpayment. That doesn’t deplete our savings but certainly does eat into our “6 month both out of work emergency fund.”
That said, our incomes STILL wouldn’t be able to afford the property taxes, commute, car insurance, or mortgage payment on a place we would consider living in NJ. We would be thrilled with a nice 2 bedroom 1 bath place in NJ but with very light browsing, we can’t find it.
My wife just finished hearing back from grad schools and was fortunate to get into a few in the area with some financial assistance from all of them. One of the biggest choices we’re facing now is, NYC or Philadelphia? (Columbia / NYU or Penn for those who care.)
The programs and schools themselves are obviously worth the most weight in the consideration and that’s something my wife will have to decide, but on paper, it’s an absolute no brainer! WE CAN AFFORD to live in Philly (and NOT in a bad area) but we just can’t afford to live in NJ, especially once we lose her salary as she goes back to school. And we most certainly are going to have to stretch to make it in NYC (probably Brooklyn), sell the car, etc.
We all make choices in life, and I think we’re on the verge of making the choice to head over the river to PA.
just a few comments from some plankton floating in the sea.
You’ve got to decide what is right for you. If you feel comfortable with those numbers, by all means.
However, if we’re talking first time buyers with no proceeds from a sale, I’d classify that as extremely aggressive. But hey, that’s just my 2 cents (which coincidentally, are worth more smelted).
My “rule of thumb” isn’t about what you can pay, it’s about minimizing housing expenses, living below your means. Not worrying about repairs or having to resort to financing to buy a car. It’s about minimizing interest paid on a loan, and paying it off as quickly as possible.
Sorry, the average Joe probably won’t be able to brag to his friends about what he can buy using the “rule of thumb”. He certainly won’t impress the Neg/AM HELOCer.
jb
Cirrus- Great comments…
If you and your wife don’t have ties to this area, I think you’re making a smart choice…
good luck
#71 Cirrus
I would say Philly if you can get a job there and you think you might want to stay in that area after your wife finishes her program. My husband lived in Philly when we met and we always wanted to move back there after I finished grad school in CA. Unfortunately, the jobs were in NNJ for us. I remember that he and a roommate paid $750/month for a three story townhouse with a small yard, 3 bdrms/2 baths within walking distance to Independance Hall. At the time (1990) that was still cheap compared to what I was paying in NNJ.
Just have to remain patient, lots of noise int he market right now, but make no mistake the market has changed,and prices are falling.
When the 500K POS Colonial becoems 400K or and when the 450 POS Cpae becoems 360k, than it will make sense for me to buy.
A so called starter house is fine for me. I had the really big one at one point, but at this stage I no longer need it.
Maybe I sound like a mope, but part of the problem is that people in their mid-20’s feel the need to buy a home. Cirrus, I don’t mean to offend, by why in the hell would would buying a home even be on the radar? – AT ALL!
Too much mainstream brainwashing! Seriously, you guys are rocking the house. You are married and developing your careers. Go out and kick-a55. Leave this house stuff to the chuckleheads and coral-obsessed.
chuckleheads… Hey, whatever happened to that candy?
Clayton (57)-
How about today?
The “Spring market” ended on March 2 (the first day of subprime-all-the-time). Any seller not under contract by then…or at least positioned extremely well right now…is toast.
Clayton (57)-
How about today?
Appreciate all the comments and just want to follow up on a few of them.
1. NOTHING “against” NJ, we’re not “haters” or anything. We’ve been living it up in Red Bank and being able to drive to the beach in > 10 minutes is truly a rare opportunity for many. NJTransit while far from the best ain’t too bad, and we’ve met a lot of lovely people here.
2. I work in Princeton and, if we do end up going to Philly, I will be able to continue to work in Princeton at a job I enjoy with people I enjoy working with (again, very fortunate). The company was also | | close to moving to Newtown, PA last year but changed their minds at the last minute. They can’t stand the taxes or the RE prices either and word around the office is that once the lease is up in 2009, they too will be moving across the river.
3. We grew up in PA, our parents live about an hour north of Philly.
4. Chicago – I totally agree and sometimes I do forget that we really shouldn’t even be in the market at this point. I hear from so many other young couples how THEIR parents or THEIR friends are pressuring them to buy a house, as if you’re not TRULY a married couple until you have a mortgage or something… (or that you can’t start making babies?)
But you’re totally right- there are too many people like us out there stressing about their first home as if your life is over at 30 if you’re still renting.
We’re definitely renting for the next 2 years regardless of where we end up and that, to me, is very exciting. Almost as exciting as owning a house :)
#76
What is wrong with having a home purchase on your ‘radar’ in your mid-twenties?
Some people want to settle down, have a couple of kids at that age. I did it and am perfectly happy with my decision.
I have to disagree that buyers in the sub-500k range have said “No, we’ve had enough.”
My husband and I live in a townhome development with units in the 300k price range. Right now there are 3 units for sale and 2 of those are under contract. We have been looking at SFHs in the 350-450 price range, and it seems every one that we like gets swiped up before we put in an offer (since we are only casually looking and in no hurry to buy). The caveat to all of this is that these places are so far just in attorney review or under contract. I am interested to see how many will actually close.
AK
Plankton is my favorite character on SpongeBob Squarepants:
http://research.soe.purdue.edu/ackerman48/images/planktonevil.jpg
I think you have to buy when it’s right for you – not because everyone else is doing it or you’re being pressured by family/friends. We bought our house when our first was 2 1/2 with the second on the way. We were in our mid 30s and we bought a starter house (it was a 2 family cape with income – we have now converted it back to a one family to fit our needs). At the time, we really didn’t have pressure to buy from anyone. Some of our friends had bought but most had not yet bought. Perhaps things are different now with those in their 20s. We had one friend buy in her 20s (she got married at 24) and that was it – everyone else bought in their 30s. I think we were all having too much fun to get that serious :-).
Speaking as a landlord…thanks for all the free pub for the rental lifestyle!
Good times.
I also want to add to #84 that those in their 20s and early 30s have really only known the real estate market as it has been these last 6 or so years – buy before you are shut out mentality. We didn’t have that and I do remember the late 80s bubble which did burst.
#83
The Dirty Bubble Rules….
Sandy Cheeks a close 2nd….have a thing for females from Texas
Good times.
At today’s cap rates? Who are you kidding.
jb
>>And that means the spring selling season should be better than last year’s.
not yet in my town. asking prices for comparable properties are up 5-10% from last years prices. i saw a 3BR,1.5BA around the block from me asking $699k. they won’t get it but they might get $660k whereas a similar property would’ve went for $615k last year. a 3BR,2.5BA across the street just went for low $700’s. both are near or slightly above last years average prices.
Another plankton aimlessly floating around is me. BTW Clotpoll, I have a reminder in my calendar to read PIMCO commentary at the beginning of every month. This piece by Bill Gross re plankton was fascinating… don’t care for too much of his recent political musings!
I think people put a lot of pressure themselves (via peer & family) to buy early, and bite more than they can chew.
We don’t face peer pressure and it helps! I finished grad school 4 years back debt free and wife finished this year debt free. We rent and have more peace of mind by socking away a decent chunk of a 1 income salary for retirement AND funding college for our 1 yr kid. We have some money saved for the downpayment but are wary of having almost all our net worth tied to our house, if we were to buy today.
Wife stays at home with the baby, but we can do that because we have no pressure of a huge mortgage. For now (while we’re young), we’d rather be at the beach on weekends or meeting family/friends rather than mowing the lawn. Would we love to have our own backyard? Sure, but for now we think the decision to rent and save 20% of salary is better than getting into a POS starter-home and a huge PITI. I can refi a mortgage rate, but never the amount! We’ll bite, and buy when the time comes. For now, renting is a good neighborhood is our preference and the flexibility that comes with it.
Nomad, vagabond, plankton, call me what you will..
>>Any seller not under contract by then…or at least positioned extremely well right now…is toast.
such generalizations diminish your credibility.
#89, Richard are you with/on Lucy in the Sky with Diamonds when quoting those prices?
Wow, looking to buy a house in your mid 20″s, why would you want that to take on that kind responsibility at your age? Enjoy life and figure out what you want to do when you grow up. For what it’s worth, I still don’t know what I want to do when I grow up.
As long as you have half a brain, the house, the children the career all comes together. Don’t follow a script or timeline, roll with it and let it unfold.
Question for BC Bob (re: post 12):
Do you any further details/thoughts on the proposed Buckeye State bailout? (Is it limited to low-income, etc.- although due to plankton theory, even low-income “floats up” to overall market) Will this allow prices to stay artificially high, etc.? (although Ohio prices are much lower than here)
“such generalizations diminish your credibility.”
Richard [91],
Funny, funny stuff. I was searching, over the weekend, for an old post of mine. Look what I found. This is credibility.
Richard Says:
August 22nd, 2006 at 10:14 pm
i believe we’ll see a slight uptick in august and september (based upon my own personal tracking) and then back to a plunge through the rest of the year. many have reports unsubstantiated evidence that august saw some uptick in sales, probably due to getting in before school season starts. still it won’t change the trend which is down down down. prices are following but still lagging transactions. it’ll catch up.
The thought of a starter home over half a million dollars makes me want to hurl.
My principle on affordability is that the PITI should be “scrape byable” on one income. That way if someone needs to stay home with kid/kids (even if you plan on working things can change) it is possible, or if someone falls ill and can’t work, the house isn’t on the line.
The plus side, is that with 2 incomes, there is plenty of money around in order to have a comfortable lifestyle and good savings without fear.
lisoosh –
Ditto. That is my family’s approach. We want to be able to handle PITI on one income. If we decide to both continue to work, its just gravy.
Prices are up per these recent sales (for those of you with full access to MLS):
2318156 – OLP – 679, LP – 609, SP – 595
2357649 – OLP – 739, LP – 739, SP – 730
You won’t find a comp anywhere within 10% of “peak” prices. These ARE the new peak prices. I would love to interview these buyers and ask what compelled them to pay 10-30% more than any comp from the past 18 months.
The 12% discount to OLP on the first one is meaningless because the OLP was 22% more than any recent comp. What are these people smoking?
get a life bc bob.
“get a life bc bob.”
Richard,
Classic, very entertaining.
bc bob, the only amusing thing about that post is it wasn’t me that posted it. in any case don’t forget i have no credibility as i don’t believe in a bubble.
For now (while we’re young), we’d rather be at the beach on weekends or meeting family/friends rather than mowing the lawn.
Yanni: if you are young, should you be mowing the lawn? ;-)
Bost: Do you remember over the weekend that you assumed that I would hit you with a 2×4 because you failed to diversify your portfolio? I’ll make a deal with you. You do something that I consider outrageous, and then I will hit Reech with a 2×4.
#93
Don’t impose your personal views on me.
I prefer(ed) to look for a house in my mid-to late twenties. If you don’t care to look for a house till later because you want to find yourself or whatever your reason is, that’s fine by me.
Different strokes for different folks. I don’t criticize your views, don’t criticize or impose on mine.
Cirrus Says:
March 27th, 2007 at 1:01 pm
1. NOTHING “against” NJ, we’re not “haters” or anything. We’ve been living it up in Red Bank and being able to drive to the beach in > 10 minutes is truly a rare opportunity for many. NJTransit while far from the best ain’t too bad, and we’ve met a lot of lovely people here.
Yo’ C: Do you know of any good rentals in Fair Haven?
Also, I can’t wait for McGlone’s to open up the deck.
Fama Jr. livens up one morning’s proceedings with a sense of humor that is the antithesis of the serious demeanor of his father.
“Saying my dad is a finance professor is like saying Michael Jordan is a basketball player,” he deadpans. “He’s really the father of modern finance. But that doesn’t mean I’m modern finance.”
Yan: I thought you would appreciate this little joke………
Fama Jr. livens up one morning’s proceedings with a sense of humor that is the antithesis of the serious demeanor of his father.
“Saying my dad is a finance professor is like saying Michael Jordan is a basketball player,” he deadpans. “He’s really the father of modern finance. But that doesn’t mean I’m modern finance.”
Seneca –
Very tasty gravy!
I’m 30 and looking to buy right now. Me and my wife make decent money but i’m not looking to spend more than $275K. We are mostly looking to buy in Middlesex. My biggest fear is that i’m ready now and if i don’t buy soon and real estate goes up i’ll never be able to afford a house here and have to force myself out and head down to NC. I hear about the bubble and see houses sitting but I have this fear that it won’t last and if I don’t take the plunge and just do it, I’ll miss the boat.
Joey- I am a huge proponent of home ownership, but to be fair, pricing still will most likely come down.
Sit tight a little bit, do your homework on the realtor sites, and you will be rewarded….these houses ain’t going anywhere soon unless their aggressively priced and move-in condition.
Yahoo.com had something posted today about 0% balance transfers. People take the money and invest it. They pay it back before it’s due and keep the interest.
I have a HELOC that is tied to a Visa that has zero on it. My house is paid off. We are solid financially, but by no means rich. I could write a 25k to 50k check to ING off of the HELOC and transfer the balance to a card that I never use, assuming that there are no hidden fees that I am missing (fine print). I know that you NEED to repay it before the grace period expires. I also know that you can’t use the card for anything else while there is such a high balance.
If I do this twice, I could pocket $2,500 to $5,000 from the cc company’s money. What am I missing here and what will this do to my credit score? I have not opened a new credit account in years and I shouldn’t need a mortgage or card loan for a while.
Chi [104],
We can all debate any market to we are blue in the face. However, how shallow can someone be to hide behind the veil of their posts. On a freaking blog. Markets and circumstances change constantly, step up and face the music. Do me a favor, hit me over the head with that 2×4 if I respond to this knothead again.
Cirrus,
My sister did the same thing. She took a job in Philly & commutes from South Jersey. The Philly burbs of South Jersey (away from the shore) are still affordable. She is very happy with her decision.
ok I just wanted to clarify that your sights are set very high. When you make a statement like “we cannot find a stater home for less than 550-650″, you were just talking about your personal tastes.
I’m sorry, but I didn’t work my a** to get a good education and good job so I could resign myself to a life of struggling to make the payments on a 1920’s starter cape in a so-so town with so-so schools.
I don’t think expecting better than this constitutes “sights set very high”. For me it’s prices come down or I pack my bags and leave NJ.
#107, I did read the article on Bloomberg….. I posted the link in the other thread but it is awaiting moderation due to the article’s heading ….Investment P0rn….
re: d2b [111]- borrowing to save.
In theory, this can work, but the problems typically relate to three things, and may not be worth the aggravation for an extra 2500 per year (assuming you borrowed 50k and earned 5 percent at ING):
1) cash advances treated differently than “normal” charges – either interest applies to supposedly “interest free” card, and/or extra fees, etc. for cash advances from a credit card, even if supposedly “interest free” (fees often between 2 and 5 percent of advance, which can completely negate the interest you earn at the bank),
2) severe penalties if you miss a payment, and some require principal payments of some sort even if interest free, so balance that is earning interest diminishes over course of borrowing as you repay credit card, and
3) hit to credit score — your outstanding to available will be very high, which is not good.
#107, Chifi, I read the DFA article on Bloomberg. I posted the link in the other thread but it is awaiting moderation due to the article’s heading; Investment P0rn.
Yan: I thought the article was very balanced. The reason they stand out in my mind is due to the following passage…..in a nutshell, they index, but they do it THEIR way with a logistical bent that is pure Chicago. “Who the f— are you to be telling us what the index is?”
Unlike traditional index fund managers, which buy all of the stocks in, say, the Standard & Poor’s 500 Index, DFA tries to capture an entire asset class — small cap or value, among others — with the purchase of huge, seemingly indiscriminate, swaths of stock.
Instead of buying all of the stocks in an index devised by someone else, DFA defines each asset class itself, based on companies’ market capitalizations and book-to-market ratios, or book values relative to market values. The firm weeds out the stocks that aren’t traded much because those shares are relatively expensive to buy and sell.
test
“ATLANTA (AP) — Beazer Homes USA Inc., which has recently suffered hefty losses amid a downturn in the housing market, now faces a federal investigation of mortgage fraud and other allegations involving the homebuilder. Beazer shares plunged 15 percent in after-hours trading Tuesday.”
“The FBI and the U.S. attorney’s office in Charlotte, N.C., along with the Internal Revenue Service and the U.S. Department of Housing and Urban Development, launched an investigation of Beazer Homes last week, FBI agent Ken Lucas said Tuesday.”
http://biz.yahoo.com/ap/070327/beazer_homes_investigation.html?.v=5
Thanks for the advice Home Seller, i appreciate it. I do plan on looking this Summer and i don’t plan i budging on my final price. If it forces me to wait then so be it.
Grim (88)-
I didn’t buy investment property yesterday. And, I made this thingy called a down payment. Cash-on-cash return is very good…
Hard to find anything- even now- that will cash flow +.
#113
Oh please, get over yourself with your Filet Mignon tastes. Unless you’re Ivanka Trump, you have to start somewhere. I did, we All do!
Don’t you think when I was looking for my first ‘starter’ home a couple years ago, I wanted to be in the nicest town w/the best schools? This is NJ. It ain’t happenin unless Mommy and Daddy are very well off. Its always been that way and its worse today. Things ain’t changing.
NJ has always been expensive. If you can’t accept this, then MOVE.
“down payment”
Clot [123],
You are so old school. Didn’t that go out with the 4 corners.
#122,
I don’t expect filet mignon, but I’m not paying filet mignon prices for scrapple.
I don’t expect the best home in the best town. Sure, NJ has always been expensive. It was expensive before prices doubled. I accept this and know that I will have to settle for less to live here. I would be happy with an average middle class home in an average town, but I’ll be damned is I am paying filet mignon prices for a starter cape in a low-end town.
When did you buy your first home again?
RentinginNJ- I purchased my first home in 2001.
i’m not sure of your age, but lets assume your in your early 30’s/married/renting and have a combined income of over 100K…fair enough?
by now, you should have a huge chunk of money in the bank (eventually for a down payment).
Let’s also assume you can get a nice 3BR/2BA starter home in one of the following towns for 330-350K…Clifton, Totowa, Little Falls, West Paterson, Pompton Lakes, Wanaque, West Milford.
What is wrong w/that scenerio? Are you against living in these towns for example?
I understand prices are still expensive, however if your looking for a 4BR colonial in Pompton Plains as a starter home, I think you can forget it..
Home Seller,
i’m not sure of your age, but lets assume your in your early 30’s/married/renting and have a combined income of over 100K…fair enough?
True
Let’s also assume you can get a nice 3BR/2BA starter home in one of the following towns for 330-350K…Clifton, Totowa, Little Falls, West Paterson, Pompton Lakes, Wanaque, West Milford.
I think this is a big assumption. I haven’t seen many homes like this in this price range unless they are in a really rough section of Clifton, need a ton of work or are in a remote corner of West Milford. For the $330 – $350 in any these towns, you are really scraping the bottom of the barrel.
What is wrong w/that scenerio? Are you against living in these towns for example?
No. I live in Clifton today, but it’s not where I want to end up long term. The whole start home concept (i.e. buy a less expensive home so that you can build equity at the same time as saving money for a bigger house) is no longer valid. Starters home are ridiculously priced, making saving difficult, and the prospect of building equity with a home purchased today is highly uncertain. You could be stuck in a starter home for which you overpaid for a very long time if prices really fall. I’m not against a starter home in Clifton, but I don’t want to be handcuffed to one for life.
RentinginNJ- I purchased my first home in 2001.
Could you have afforded to purchase 2 starter homes in 2001? That’s basically what’s being asked of first time buyers today.
SO, I will continue to rent and see if prices fall. If they don’t, I will likely relocate outside of NJ.
Chifi, DFA’s approach is what initially drew me to the indexing concept. Until I get to their minimums, I have to consider alternatives like Vanguard’s index funds, and a few low turnover managed funds by other shops.
But a retail investor can get access to DFA funds through the 529 college plan offered by state of Virginia.
d2b (112)
Recommend that before doing the balance transfer you call the credit card company, tell them what you propose to do and confirm that this will not result in any charges.
Sometimes these offers state things like “transfer an existing balance for absolutely no fee” and/or “write a check to anybody for anything”, but nevertheless there is a transfer fee when you write the check (as opposed to the card to card transfer), and it is not obvious. But when I have called the credit card company to confirm whether there will be a charge for what I plan to do, I have found there advice to be dependable.
Once you confirm that there will be no charge on the current transaction, don’t assume it will work the same way with similar language on other cards, or even the same card in the future. (Just a couple of word changes or rearranged words, and guess what, you get charged a fee.)
One other thing to watch out for: When they say something like “interest free through the billing month prior to the December bill”, you have to tickle your calendar to take a look at the terms again toward the end of September, because interest might start accruing in October (while you have in your head that the interest-free runs out in November).