housing affordability at an all time high (NOT) (Newark, Union: real estate, mortgages)

[elflord1973]

Just for fun, I picked up the HOI data, which includes local data for several markets. The data here is for the HOI region "Newark-Union, NJ-PA ^^^".

As has been pointed out, median house prices are still high despite the recent down tick:



But incomes have gone up, right ? Not as much as houses though ... Here is the median price/median income ratio:



OK, but "affordability" is high, because of low rates, right ? Maybe, but not in NJ ...

[JG183]

NJ -- only the strong survive !

[MoorestownResident]

The conclusion is correct. NJ is never going to be inexpensive relative to the ratios that are thrown out in the media regardless of how bad the market is. Just too many people, with no land sandwiched between two of the largest metro areas in the country. The problem with the bear folks - they don't understand up/down statistics (ie 75% upside must mean 75% downside), and they are waiting for NC pricing to come to NJ which will never come.

Personally, I think if you miss this market bottom in NJ I suspect you will never get a chance to negotiate price on a house like this again in your lifetime. And you will almost certainly never get a chance at locking in a 30 year fixed rate with a 4 handle. And rates will likely double in the coming 5 years. You watch.

[NatasNJ]

I agree that interest rates in long term are SURELY to go up but as the rates rise over time that will continue to put pressure on prices. Whether that means them to drop in price or reduce the general appreciation one would typically get those increased rates will not help housing prices.

I am over trying to time things to perfection. Praying this spring some houses will appear priced reasonable and I can find the right one and be done with my search. Then I can stop looking at real estate pricing for 5+ years and pray that I have not lost any of my down payment. And hopefully won't have to sell for many years after regardless.

[Kracer]

If any state has jobs, it is NJ. Most people are working. Access to everything is close by unlike many other states. High population density, job opportunity will always keep property/housing at a premium.

See the queries re... "I want to be an hour from NYC"...well that area would include about 1/2 of the entire state.

Don't want NY? Then Philly is right next door. Trains direct to DC.

If NJ would be the last part of the ship to be above the waves if the ship was sinking.

[elflord1973]

Originally Posted by MoorestownResident

The conclusion is correct. NJ is never going to be inexpensive relative to the ratios that are thrown out in the media regardless of how bad the market is.
Just too many people, with no land sandwiched between two of the largest metro areas in the country.

The market isn't even close to bad yet, as evidenced by the above. Prices are high, price/income ratios are still at bubble levels, and affordability is still below historical norms.

Sure, there are reasons that NJ is expensive, but those reasons all applied back in 2000.

The problem with the bear folks - they don't understand up/down statistics (ie 75% upside must mean 75% downside),

I understand them just fine. But real estate prices are not a random walk. For something to follow a random walk, today's prices need to match future expectations. This breaks down in some markets (e.g. commodities, real-estate) because it isn't possible to "short" like it is with stocks (with commodities, the problems are that you can't "borrow" the commodity, and you often can't store it either).

Personally, I think if you miss this market bottom in NJ I suspect you will never get a chance to negotiate price on a house like this again in your lifetime.

Rates drive prices. When rates are up, prices are down. Here are the scatter plots of historic rates vs the HOI affordability index and rates vs price/income (Q197-Q4 2008), it is surprising in the sense that the formula takes low rates into account.

[MoorestownResident]

Originally Posted by NatasNJ

I agree that interest rates in long term are SURELY to go up but as the rates rise over time that will continue to put pressure on prices. Whether that means them to drop in price or reduce the general appreciation one would typically get those increased rates will not help housing prices.

I am over trying to time things to perfection. Praying this spring some houses will appear priced reasonable and I can find the right one and be done with my search. Then I can stop looking at real estate pricing for 5+ years and pray that I have not lost any of my down payment. And hopefully won't have to sell for many years after regardless.

Hey, congrats on finally becoming a bit more reasonable. Where you are looking to buy you should have no concern whatsoever. Most of South Jersey is a great investment and will be for many decades.

[MoorestownResident]

Originally Posted by elflord1973

The market isn't even close to bad yet, as evidenced by the above. Prices are high, price/income ratios are still at bubble levels, and affordability is still below historical norms.

Sure, there are reasons that NJ is expensive, but those reasons all applied back in 2000.

I understand them just fine. But real estate prices are not a random walk. For something to follow a random walk, today's prices need to match future expectations. This breaks down in some markets (e.g. commodities, real-estate) because it isn't possible to "short" like it is with stocks (with commodities, the problems are that you can't "borrow" the commodity, and you often can't store it either).

Rates drive prices. When rates are up, prices are down. Here are the scatter plots of historic rates vs the HOI affordability index and rates vs price/income (Q197-Q4 2008), it is surprising in the sense that the formula takes low rates into account.

Attachment 38274

Attachment 38275

Sorry, that's a lot of nonsense. Rates do not drive prices, the local market supply/demand drives prices. Rates are one factor in affordability, they are not the main factor of affordability despite what realtors would lead you to believe. Your downpayment, income and creditworthiness determine affordability, rates are actually a small component even if you are buying a million dollar house. Lastly if rates are high, growth is therefore strong, inflation may or may not be high, real estate should do very well in that scenario, plus R/E is a classic inflationary hedge.

[Delphi]

90% tax on bonus has more impact on this area than any other areas in the country. This will take 6 months to cascade to housing, but it will for sure.

I know a lot of people who depends on bonus to pay mortgages/car lone.

Those "within 1 hr of NYC" folks are impacted more than floks in south Jersey because of job loss or 90% tax on bonus.

[elflord1973]

Originally Posted by MoorestownResident

Sorry, that's a lot of nonsense. Rates do not drive prices,

I supported my comment with data. The plot that I posted shows that historically, low rates coincide with high prices, whereas high rates coincide with low prices. So it's unlikely that rates will go up and prices will also go up.

Now we can argue the causal dynamics of this all day, but the real-estate "bulls" are predicting an unprecedented combination of high prices and high rates.

the local market supply/demand drives prices. Rates are one factor in affordability, they are not the main factor of affordability despite what realtors would lead you to believe. Your downpayment, income and creditworthiness determine affordability, rates are actually a small component even if you are buying a million dollar house.

I understand this -- because I understand how the affordability index works. It is some of these other factors that lead to the counter-intuitive result that higher rates historical tend to coincide with higher affordability. Holding all other parameters constant, affordability increases when rates drop. But in the real world, the other parameters are not constant. In particular, low rates fuel asset bubbles, which lead prices to overshoot upwards.

In terms of the HOI index -- it takes into account property taxes and median income. It assumes a 20% down payment, which tends to make the index biased in favor of a low interest rate high price environment. It doesn't take into account that it is possible to refinance (which also biases it in that direction). It doesn't take into account personal savings.

But this helps me, not you. If we take into account the other factors, then the affordability numbers should be even lower in the high price, low rate, low savings boom.

Lastly if rates are high, growth is therefore strong, inflation may or may not be high, real estate should do very well in that scenario, plus R/E is a classic inflationary hedge.

I agree that an environment where rates are high (which, historically, means that prices are low!) is a good one to buy in. Your monthly payments will not be any higher than they are when the rates are low, and you have the option to refinance.

An environment where rates are low and expected to go up, on the other hand, is not a good one to buy into.