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I just want to discuss the fact that if you research the median household income vs the median home price in most north jersey towns(using n. Jersey as an example) you will see a huge gap that does not fit the 3-3.5 X gross salary lending standard that has been reported. (I realize this has probably been discussed here before)
As a random example here's Hawthorne's numbers. Do the math on the 2000 numbers vs the 2009 numbers. 2000 was on par with practical lending standards of 3X:
Estimated median household income in 2009: $67,688 (it was $55,340 in 2000)
Estimated median house or condo value in 2009: $411,770 (it was $202,000 in 2000)
If the numbers do not make sense because of the 5-6 times loose lending situation between 2002-2006, then why is it not "logically/mathematically" correct to assume the median home price should adjust(at some point) to the 3-3.5 times lending standard that is considered safe?
I have plenty of other questions and theories as to why it will or will not adjust etc etc but lets start with this question. (if my logic here is misguided let me know where I went wrong etc)
my wife and i fall under the 3-3.5 "standard" that you are speaking of. thought when we approached it, we looked at % of monthly income. mediam incomes haven't kept pace with the cost of anything though, so i'm not sure what your point is. people end up having to spend more % of income on housing costs and necesseties, and have less left over for "wants". that's why our country has pathetic growth rates right now. if i'm spending $3.50/gallon on gas instead of $1.50/gallon, yet my income didn't increase by nearly 2.5x in that same period, i have more monthly expense going to gas, and less left over for other items. i still need gas though don't i?
Well, the numbers can be misleading. You have to take into account the fact that in a town not every household will live in a house. They could pretty much live in a apartment or rent in a 3 family house owned by somebody else. These types of families bring the median household income down. Those numbers don't tell how much money a family has saved for a downpayment to put down on a house or what kind of property taxes they are going to pay.
...so i'm not sure what your point is. people end up having to spend more % of income on housing costs and necesseties, and have less left over for "wants". that's why our country has pathetic growth rates right now.
My point in all this is to figure out if it's somehow possible for people to continue to buy houses and keep the prices of houses beyond whats possible based off the median household income and the 3-3.5 lending standard.
If they do then what happens is exactly what you mentioned. People live less freely, spend more on everything, thus have less for kids college tuition, savings, retirement etc etc.
Homes are not cheap or easy but they shouldn't put people on the fringe of disaster and monetary distress. It seems like that's what is thought of as the norm.
Well...since you are using my town as an example, I'll chime in. This is a classic correlation does not equal causation argument. They are independent variables and really have no direct effect on each other. If you look at Hawthorne you see the drastic increase in Median Home Value over the past 10 years. A big reason for that is anyone priced out of Glen Rock, Ridgewood and Wyckoff in the last decade suddenly realized that Hawthorne looked pretty similar and had a lot to offer. This is still the case today.It is just as likely to see an increase in median HHI as a dip in home prices(I'd like to think more likely but I have to be objective).
The rise in value in this market was not solely due to the loose lending standards of the day it was also driven by the high desirability of the area in general. This is true for a lot of NJ that is why you did not see a bubble like you saw in Vegas or other severely inflated markets. There was still a drop but not as significant.
Part of your logic is sound, however you are not considering that the salary of a person moving into a house has nothing to do with the salary of the person who lived in that house before them. The fact of the matter is there are plenty of people with high incomes ready to move into this area. that is what has driven prices higher and will keep them there IMO
Last edited by Goldendoodle1969; 10-05-2011 at 02:46 PM..
Well, the numbers can be misleading. You have to take into account the fact that in a town not every household will live in a house. They could pretty much live in a apartment or rent in a 3 family house owned by somebody else. These types of families bring the median household income down. Those numbers don't tell how much money a family has saved for a downpayment to put down on a house or what kind of property taxes they are going to pay.
I don't see how property taxes or downpayments effect the basic math and lending standards. There are not enough people with hundreds of thousands of dollars in the bank or that put down 50% that allows them to purchase homes 5-6 times their household income.
If anything the taxes hurt the equation even more.
I could be wrong but I just don't see it as factors to justify the numbers.
Well...since you are using my town as an example, I'll chime in. This is a classic correlation does not equal causation argument. They are independent variables and really have no direct effect on each other. If you look at Hawthorne you see the drastic increase in Median Home Value over the past 10 years. A big reason for that is anyone priced out of Glen Rock, Ridgewood and Wyckoff in the last decade suddenly realized that Hawthorne looked pretty similar and had a lot to offer. This is still the case today.It is just as likely to see an increase in median HHI as a dip in home prices(I'd like to think more likely but I have to be objective).
The rise in value in this market was not solely due to the loose lending standards of the day it was also driven by the high desirability of the area in general. This is true for a lot of NJ that is why you did not see a bubble like you saw in Vegas or other severely inflated markets. There was still a drop but not as significant.
Part of your logic is sound, however you are not considering that the salary of a person moving into a house has nothing to do with the salary of the person who lived in that house before them. Therefore the salary of the person moving in is all that matters.
I'm trying to follow your logic here.
So are you saying the people with ALMOST glen rock salaries moved to hawthorne to afford the housing there. If so how does that effect my example. Wouldn't that just increase the MHI (median household income)in Hawthorne and thus increase the MHP (media home price)?
I agree on the salary of the person moving in is all that matters however what else would it be about other then the people living in the house, in the town. The numbers I pasted are of "present" owners. The numbers cant be of future purchasers not entered into the system yet. You lost me here.
BTW there are a lot of examples so far as to how my logic could be off in some instances etc but look at the numbers from 2000. Theres a reason they are different from 2009.
My point in all this is to figure out if it's somehow possible for people to continue to buy houses and keep the prices of houses beyond whats possible based off the median household income and the 3-3.5 lending standard.
If they do then what happens is exactly what you mentioned. People live less freely, spend more on everything, thus have less for kids college tuition, savings, retirement etc etc.
Homes are not cheap or easy but they shouldn't put people on the fringe of disaster and monetary distress. It seems like that's what is thought of as the norm.
well, the median income of a household in a town doesn't tell you what you're asking. the median income of homeowners in a town would tell you that. my guess is subban is correct...if a house costs $600,000, i doubt the family making $68,000 or less is purchasing it. everyone in town would have to be an owner for your numbers to be meaningful to your question.
Well...since you are using my town as an example, I'll chime in. This is a classic correlation does not equal causation argument. They are independent variables and really have no direct effect on each other. If you look at Hawthorne you see the drastic increase in Median Home Value over the past 10 years. A big reason for that is anyone priced out of Glen Rock, Ridgewood and Wyckoff in the last decade suddenly realized that Hawthorne looked pretty similar and had a lot to offer. This is still the case today.It is just as likely to see an increase in median HHI as a dip in home prices(I'd like to think more likely but I have to be objective).
The rise in value in this market was not solely due to the loose lending standards of the day it was also driven by the high desirability of the area in general. This is true for a lot of NJ that is why you did not see a bubble like you saw in Vegas or other severely inflated markets. There was still a drop but not as significant.
Part of your logic is sound, however you are not considering that the salary of a person moving into a house has nothing to do with the salary of the person who lived in that house before them. The fact of the matter is there are plenty of people with high incomes ready to move into this area. that is what has driven prices higher and will keep them there IMO
but those high incomes should also raise the median income of the town, not just the median prices of homes in the town. i think subban hit the nail on the head.
I don't see how property taxes or downpayments effect the basic math and lending standards. There are not enough people with hundreds of thousands of dollars in the bank or that put down 50% that allows them to purchase homes 5-6 times their household income.
If anything the taxes hurt the equation even more.
I could be wrong but I just don't see it as factors to justify the numbers.
how do you know that any homeowner purchased a home 5-6 times their income? you're assuming that the median household income of a town is correlated to the median home price. that would only be true if every household owned.
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