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.
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.
6 Comments:
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.
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.
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.
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.
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