Monday, September 26, 2005

A Look At Five Homes

Was a slow weekend, so I decided to go through some listings & tax data to see how "overpriced" a representative sample of homes were. I picked communities that some might think were a bit more 'upscale', however I do think they are representative of the area as a whole. The towns picked were Mendham, Chatham, Wayne, Montclair and Ridgewood.

I went through listings one by one until I found a home that sold between 1990 and 2000. I thought this was far enough back to illustrate the gross difference in current asking prices and what I believe the asking price should be. Addresses were not included, as to protect the 'innocent'.

Now, in order to come up with the fair asking price, I assumed 5% appreciation per year over since the year of purchase until now. Now, you might say 5% is too low, however I think 5% is generous given the fact that buildings are assets that depreciate. To this value, I assigned the name, "More than fair price", since I believe, it's more than a fair number for a home. In fact, in many cases, over a long time period you would have been hard pressed to make the same gains in CDs, Bonds, or the Stock Market. I picked homes that did not have any major remodeling, construction, or updating done to the house, as to not confound the 'value'. So lets take a look..

Home A - Mendham, Morris County
Sold 1997 $354,900
More Than Fair Price $524,000 (8yr @ 5%/yr)
Asking 2005 $819,000 (8yr @ 11%/yr)

Home B - Chatham, Morris County
Sold 1995 $525,000
More Than Fair Price $855,000 (10yr @ 5%/yr)
Asking 2005 $1,295,000 (10yr @ 9%/yr)

Home C - Wayne, Passaic County
Sold 1996 $375,000
More Than Fair Price $581,000 (9yr @ 5%/yr)
Asking 2005 $749,900 (9yr @ 8%/yr) - Orig $774,000

Home D - Montclair, Essex County
Sold 1993 $238,000
More Than Fair Price $428,000 (12yr @ 5%/yr)
Asking 2005 $599,000 (12yr @ 8%/yr) - Orig $699,000

Home E - Ridgewood, Bergen County
Sold 1991 $175,000
More Than Fair Price $350,000 (12yr @ 5%/yr)
Asking 2005 $649,000 (14yr @ 9%/yr)

Absolutely unreasonable percentage gains here, I think this helps illustrate why I think prices are going to fall approximately 30-40 percent (beginning in the very near future).

Caveat Emptor!
-grim

5 Comments:

Blogger jackhammer said...

Nice rational approach to look at the real estate market. Unfortunately the real estate market is made up of a bunch of irrational fools and speculators getting risky low interest loans to buy houses.
The problem that I have is that many people that own a house could not even afford the house they live in. Based on some of my work I believe house prices in the area are overpriced by about 25%.
Things have definately slowed, but don't expect a realtor to share this with you. You can't trust any one of them.
Looking forward to the fall in prices which I expect will hapeen much more quickly than the past due to the excessive leverage to buy a house and the risky loans being used by buyers today. many will find themselves in deep trouble soon as property taxes, gas and utility bills escalate in price.

9/27/2005 08:27:00 PM  
Blogger grim said...

Late credit card payments are at a record high, and the holiday spending season & heating bills haven't even started to pour in yet. If they think this is bad, I wonder what they'll say when February's numbers are in. You'll have a combination of higher interest rates, significant heating bills, continuation of high gas prices, and the doubling of credit card minimum payments.

http://www.msnbc.msn.com/id/9514391

This winter doesn't look positive at all. The retailers know it, I'm already getting Chrismas/Holiday related sales flyers, catalogs, etc. This is the first time I can remember being hit with the X-Mas Blitz before Halloween, heck, it's not even October yet.

Caveat Emptor!
-grim

9/28/2005 10:52:00 AM  
Blogger Cole Kenny said...

I've posted a Housing Bubble poll on my site. The more participants, the more interesting the results. Cole @ The Boy in the Big Housing Bubble

9/28/2005 07:28:00 PM  
Blogger transmissionfluid said...

How did you check this data? Is there a Website somewhere, do you need to be a realor, or do you have to go down to some tax office?

9/30/2005 10:58:00 AM  
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