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While researching NJ towns I've noticed that home prices don't always reflect the incomes of their town. For example Hanover township has a median home price of $467,500 and a median family income of $115,000. Meanwhile, other towns like Rockaway township have a median home price of $320,000 and a median family income of $111,000. It seems illogical that a family earning an extra 4,000 a year could afford a home for almost $150,000 more. Another example is Boonton with a median family income of $89,000 and a median home price of 335,000. I figured it would make for an interesting discussion. What are your theories as to why this disparity exists?
- inherited money for a large down payment
- sold the previous home at a large profit allowing them to put a large down payment
- inherited the home itself
- people living in the house for many years prior to the housing boom when home prices were more in line with median income
- people flat out overextending themselves
Or maybe we're just in another bubble and we're gearing up for some declines in real estate prices.
I wonder the same thing. Most homes in decent North Jersey towns start at around 450-500K. Are people really making that much money, assuming their following the "2x-2.5x yearly income" rule?
I wonder the same thing. Most homes in decent North Jersey towns start at around 450-500K. Are people really making that much money, assuming their following the "2x-2.5x yearly income" rule?
I think most people consider 3X income to be the rule, but I always thought that was too high. 2X is smarter. But I don't think 450 or 500 is out of reach for 2 income families. There are many people in NJ making $100k. Put two of them together, let them save up a few years for a down payment or trade up from a smaller home, and they are all set to buy their 500k home.
Last edited by AnesthesiaMD; 08-16-2016 at 07:18 AM..
Unless the two towns are identical in every way (transportation and distance to the city, school district quality, home size, general town services) there is no way to guess why one place has a higher home value vs another, even with identical medium incomes. Does one down have an area prone to flooding? Well that might explain the cheaper house costs.
The 2x or 3x annual income guideline doesn't really apply anymore. Perhaps it did in the days of 8-12% interest rates. Does anyone really think a family with a household income of $200k can only afford up to only $600k? Besides, it's what you fiance that determines affordability, not total purchase price. If you put 20% down on a $500k house, that's only a $400k mortgage. At 3.92% interest for 30 years that's less than $1900 a month (of course NJ property taxes can easily add another $1k or more a month). That is easily affordable for a household earning $115k a year - that's $9500 a month before taxes.
The 2x or 3x annual income guideline doesn't really apply anymore. Perhaps it did in the days of 8-12% interest rates. Does anyone really think a family with a household income of $200k can only afford up to only $600k? Besides, it's what you fiance that determines affordability, not total purchase price. If you put 20% down on a $500k house, that's only a $400k mortgage. At 3.92% interest for 30 years that's less than $1900 a month (of course NJ property taxes can easily add another $1k or more a month). That is easily affordable for a household earning $115k a year - that's $9500 a month before taxes.
Housing crisis anyone?
That is $6500 a month after federal, FICA and state taxes. $3000 for mortgage and escrow.
Leaving you $3500 a month for upkeep, utilities, IRA contributions, food, childcare, 2 car payments, car insurance and maintenance, health care, vacations, etc. And if one spouse loses a job, you are in real trouble.
Sure, you could do it, but you will be house poor and living paycheck to paycheck. A much smarter person at that salary would buy a cheaper home, and maybe even...I don't know...invest some of the money they saved.
Mine was 3.5X when I bought it, and I didn't sell my previous house first. You do what you gotta do; houses at 2.5X were clearly not acceptable. Hey, WaMu said 4-5X :-).
Mine was 3.5X when I bought it, and I didn't sell my previous house first. You do what you gotta do; houses at 2.5X were clearly not acceptable. Hey, WaMu said 4-5X :-).
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