Sunday, October 16, 2005

Leave N.J., or go deep into debt?

Great article in the Asbury Park Press this morning..

Leave N.J., or go deep into debt?

...

But experts feared the foundation of a strong real estate market — well-paying jobs — is weakening. New Jersey, once a leader in high-wage employment in everything from pharmaceutical companies to telecommunications, is losing its grip on those jobs.

And the culprit might be the cost of living. The New Jersey Business and Industry Association showed the state has the third-highest cost of doing business when factoring in labor and energy costs and taxes. It trails Massachusetts and California.

...

New Jersey, for the first eight months of the year, added 25,200 jobs. The nation added 1.5 million jobs during that time. Since New Jersey accounts for 3 percent of the nation's labor force, it should have added 46,500 jobs so far this year.

The state has added jobs in sectors such as leisure and hospitality, which pay about $20,000 a year, less than half the average state wage of $48,402. And it hasn't kept pace with the rest of the nation in high-paying sectors. For example, the state's pharmaceutical industry in 1990 accounted for 20 percent of the industry's employment nationwide. In 2004, it accounted for 13 percent.

New Jersey's per-capita personal income, while still among the highest in the nation, hasn't kept pace with the rest of the country. It was 29 percent higher than the nation in 2000 but slipped to 26 percent above the national average in 2004.

...

"The concern is whether home buyers trading up will be able to afford the current price structure that current baby boomers are going to vacate," said Jeffrey Otteau, president of The Otteau Appraisal Group, a real estate consulting company in East Brunswick.

What would happen to home prices if interest rates go up and income growth continues to lag? For one, residents with interest-only financing won't be able to afford their mortgages, raising the specter of foreclosure."

If you want, you can paint a bleak picture from that," Otteau said.

...

Taken together, the high taxes, soaring home prices and comparatively stagnant wages paint a gloomy picture. College graduates might not make enough money to buy their first home in their home state. Residents who bought a home using unconventional financing could struggle to keep up with their mortgage payments five or 10 years from now. And baby boomers who want a smaller home that is easier to maintain might consider moving out of state — even if it means being farther away from their children and grandchildren.

...

The state's median annual household income of $61,359 in 2004 was 37 percent higher than the national average, but its median monthly housing cost of more than $1,700 was 52 percent higher than the national average, Rutgers University economist James W. Hughes said.

...

A new homeowner in Monmouth or Ocean county needs a household income of more than $100,000 a year to afford a median-priced house of $394,100. Those who don't make that much risk overextending themselves. The percentage of residents taking out unconventional mortgages with incrementally rising payments has risen sharply during the past two years, even though the average 30-year fixed mortgage rate has been near historic lows.

...

The Federal Deposit Insurance Corp. reported that 20 percent of all mortgages in New Jersey last year were interest-only loans, compared with 15 percent in New York and 11 percent in Pennsylvania. But some local mortgage brokers said that volume has grown this year.

13 Comments:

Anonymous Anonymous said...

It all comes down to 4 things imo.

1) The Federal Reserve, Greenspan, policies are totally reckless. He is to blame for a growing trade deficit and weak currency. (Although lately it has strengthened some but over his tenure dollar has weakened considerably against many currencies).

2) The Real Estate Industry is a crooked industry that manipulatesd info and should be held accountable. I believe Trial Lawyers are going to find many cases of abuse in the coming years. I expect large class action suits aganst various constituences of this industry.

3) Lax easy negligent lending practices. The FederalReserve and Lenders have looked the other way why shenanigans and corruption are going wild with mortgages.

4) Tax laws that have promoted real estate to much. How does building a 4000-5000+ sq ft house and people buying 2 ,3 4, homes making our country more competitive?
The Gov't needs to rollback these "GIFTS" and promote savings and investment in R&D and for retirement. Many many people are totally reliant on the value of their house to retire. This mindset needs to change and these slugs need to save and sacrifice some.

10/16/2005 08:49:00 AM  
Blogger Richie said...

I agree.

1. Greenspan should have been replaced long ago, I'm sure there's others in the FedRes that need to be replaced as well. People panicked back in 99-00 when he was going to leave; they should have let him. We would have been in a much better position today.

2. Every industry is crooked, but the RE industry is going to feel it the most. Many lost jobs, and the "sad sad" stories of the RE agents who had it all and now are playing guitar in coffee shops to make ends meet.

3. Yes. The fact that mortgage brokers and lenders are taking no deposits is a shame. People have no equity in their homes these days. To push an ARM when rates are low sounds great; until those rates go up. And that's what they will be doing.

4. I feel sorry for the people who are planning to retire on their home. You can only retire on your home if you have quity in it; not a 40 year mortgage. And then where are you going to go? To a senior citizens community where they'll rape you for everything you have left over?

10/16/2005 09:53:00 AM  
Blogger RentinginNJ said...

This comment has been removed by a blog administrator.

10/16/2005 09:54:00 AM  
Blogger RentinginNJ said...

I really have to give a thumbs-up to the Asbury Park Press. Most local papers just call a local RE agent for an “expert opinion” and bang out the tired old “No Bubble Here Says Expert” article. This author actually spent some time digging a little deeper. Good job.

“Leave NJ or go deeper into debt”? I am finishing my MBA next year, at which time I will be faced with this tough question. Incomes here just don’t support the cost of living (especially buying a home) for younger people who didn’t get to take part in the huge RE run-up. I have often thought that I would buy once the bubble burst, but last time (late 1980’s) it was a slow process, taking almost 10 year to go from top to bottom in real $. I’m not willing to wait 5 – 10 years to own a home. My parents, nearing retirement and faced with an $8,000 property tax bill and skyrocketing heating bills, are also thinking about making the move.

10/16/2005 09:55:00 AM  
Anonymous Anonymous said...

It didn't take 10 years to correct more like about 4-5years.

But imo this bubble is much much worse than the last one. They didn't have exotic creative finaning the ay they do today. Gredit is easily doled out. However many many folkks are going to find themselves in big trouble.
They are bascially slaves. Generating a paycheck only to see the entire amount go out the door each month because most are living beyind their means.
Real estate is going down quickly. It went up quickly last 3-5 years now it's going to drop quickly.

Also many many industries that NJ beneifitted from are now under majoir pressure. For one the pharmaceutical business is suffering and I expect it to continue to downsize over the next 5 years. many high paying jobs provided from these pharma companies. Next is AT&T which supported many workers in NJ. Same with Lucent. Well these companies are dying slowly so are the high paying jobs.
The price of housing is going to be under extreme pressure. Many jobs such as builders, realtors mtg brokers laborers, electricians plumbers landscapers remodelers are going to face some tough times in the near future. I hope these people are prepared for some lean years. This is not productive growth. We need more researchers and scientist to come up with real life solutions. Unfortunately the morons in the Federal Reserve and the poiticians both parties are reckless and unwilling to make tough decisions.
I see pain ahead. Cash will be king and a strong personal balance sheet.
Patience will be rewarded.

10/16/2005 10:31:00 AM  
Anonymous Anonymous said...

DO NOT BID ON A HOUSE UNLESS YOU BID 25% LESS. THEY WENT UP OVER 80-100% LAST FIVE YEARS NOW ITS GIVE BACK TIME.

A CONDO JUST FORGET IT.
50% DROPS COMING.SO BID 50% LESS IF YOU WANT TO BID.

PATIENCE.
THE RE INDUSTRY AND GREEDY SELLERS ARE GETTING THE MESSAGE NOW.

10/16/2005 10:38:00 AM  
Anonymous Anonymous said...

Houses that sold for $350K 5 years ago are asking $700k-$750K now.

Take $350K and compound out at 5% then bid. So now it should go for $450K. That's more like a 35% drop.
Nothing more.

So rule of thumb. Go back to 1995 or 1998 or 2000 and compound out at 5% then offer that price. It's fair and reasonable. May not be in the future with job growth slowing and high paying jobs dwindling, pharmaceuticals and telecom weakness.

10/16/2005 10:51:00 AM  
Blogger RentinginNJ said...

The reason I was said “almost 10 years” is because I was adjusting for inflation. Much of the decline in “real” home prices last time came from the fundamentals catching up with flat housing prices (after a few years of decline in nominal prices).
Newark-Union NJ-PA MSA
1988 $330k (2004$)…the top
1997 $237k (2004$)…the bottom
Nearly 30% haircut.
I do agree tat this time it will be much worse and could come much quicker. This bubble is much bigger than last time and is built on a flimsier foundation of risky lending practices.

10/16/2005 10:55:00 AM  
Blogger Richard said...

this article alone shows the unsustainability of today's environment. there must be a closer equilibrium between house prices and wage earnings. the Fed is hoping prices slow down or flatten and wages catch up. where are the wages catching up after numerous reports of 5 years of flat growth? now NJ is lagging behind the national median figures. NJ already has outrageous property taxes and housing costs. businesses will not move or expand here when it's the 3rd highest cost state to do business.

what you're just starting to hear about now is the macroeconomic challenges of the coastal/bubble states to stay competitive in the US, and eventually probably the world. if wages can't meet affordability, people won't work here.

i don't know how long it's going to take for this puppy to correct itself, but i think 3-5 years is a good guess to get prices back to a more sane level.

10/16/2005 11:54:00 AM  
Blogger RentinginNJ said...

Grim,

I hope you post up today's article in the Bergen Record. It was nothing special, but I had to laugh at the latest reason why Northern NJ is not in a bubble. Apparently, we are protected by “bubble wrap” (i.e. our proximity to NYC). Well I feel better now. I am ready to buy that 500k condo in Newark with a nothing down option ARM.

http://tinyurl.com/7h9p4

10/16/2005 02:37:00 PM  
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4/10/2006 12:33:00 PM  
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