Mortgage rates are at a rock-bottom 5 percent, and home prices have tumbled as much as 20 percent — making North Jersey homes much more affordable.
But the region remains one of the costliest real estate markets in the country. Buying a home — including the cost of property taxes — remains more of a stretch than it was even a decade ago. In a recent analysis of property sales data, The Record found that a North Jersey household with the median income is further away than they were in 2000 from being able buy a median-priced house — a traditional measure of affordability.
Kate and Mark Chabus know this reality firsthand. She’s a nurse and he’s a chef, with paychecks that put them in the range of Bergen County’s median household income of around $90,000. Because they’re expecting their second child, they’re about to outgrow their Englewood apartment. They started their house hunt in Bergen County, looking at properties in the $330,000 range — about $100,000 below the county median.
“Every time we mentioned to anyone that we’re thinking of buying, they’d say, ‘This is the time to do it; you can get a good deal,’ ” Kate Chabus, 28, said. But the Bergen County homes that they could afford needed a lot of work. So instead, they’re buying a three-bedroom Pequannock town house that was listed in the mid-$300,000s.
“It was what we loved in our price range,” Kate Chabus said. “We just couldn’t find that here in Bergen County.”
Prices may drop
Unless incomes rise rapidly or banks ease their mortgage standards, the numbers suggest that home prices may be headed down further, with Passaic ripe for the biggest drops. However, analysts caution that other factors, including the area’s proximity to New York City, could boost demand enough to prevent steep additional declines.
The typical Bergen household could afford the typical house in a majority of New Jersey counties, but not in Hunterdon, Essex, Morris, Monmouth, Somerset and Cape May. The typical Passaic household, however, would have to go to Cumberland, Salem, Gloucester or Camden counties in the generally poorer and more rural southwestern corner of the state to find something affordable.
While incomes (after inflation) have dropped 4 percent in Bergen County and 18 percent in Passaic over the past decade, the region’s home prices are about 70 percent higher than they were in 2000.
“Even with the price corrections that have occurred, our most expensive markets are still not back to the level of affordability that we saw prior to the housing bubble,” said David Stiff, chief economist at Fiserv, an information management company that tracks real estate prices. “That’s definitely true with the New York metropolitan area. It’s also true in a number of other markets, such as San Francisco and Los Angeles. Households place a premium on being able to live in those markets, in part because there are more high-paying jobs and more diverse economies, so that if they need to change jobs, it’s easier to change jobs.”
Fiserv predicts a further 10 percent decline in the region’s home prices. But according to The Record’s analysis, Bergen prices would have to come down 17 percent, and Passaic prices even more, to be truly affordable — defined by the federal government as monthly housing costs that take up no more than 31 percent of a household’s monthly income. (Some mortgage lenders will allow for a higher percentage to be spent on housing, but generally only for borrowers with excellent credit scores, little debt and large down payments.)
Big chunk of income
As prices now stand, buying the median-priced home in Bergen County (mortgage, property taxes and insurance) would soak up 35 percent of the typical household income in the county. That is down from the 2006 peak of 42 percent, but is still above the 2000 level of 32 percent.
And that is based on buyers making a 20 percent down payment of $80,000 to $90,000. Many buyers put down a smaller amount, which means their monthly housing costs consume an even higher percentage of income.
The situation is far worse in Passaic County, where the monthly costs on the median home price still eat up 43 percent of the typical household income, down from 51 percent in 2006 but well above the 34 percent level of 2000. Passaic County’s income figures are pulled down by poor areas of Paterson and Passaic.
Nationally, home prices have already returned to affordable levels, according to the National Association of Realtors, which recently estimated that the median-income household has 184 percent of the income needed to afford the median-priced home at current low mortgage rates.
Stiff said that North Jersey prices may never return to the affordability levels of even a decade ago. Once a housing market becomes more expensive, it tends to ratchet up with each economic cycle, and even market downturns don’t erase all the price increases, he said.
“If there’s a surge in price, it tends to stay elevated to some degree,” he said.
Jeffrey Otteau, an East Brunswick appraiser who tracks housing markets around the state, said that North Jersey, especially Bergen County, has always been a costly market because it’s so close to New York City. And the rebound on Wall Street will tend to keep prices up in this area, he said.
Another factor that props up prices: the difficulty of building new homes in North Jersey, said Dan McCue, an analyst with Harvard’s Joint Center for Housing Studies. Over the long term, the supply has not kept up with demand.
High property taxes
Certainly, the area’s high property taxes are a big part of the reason this area is much less affordable than the rest of the nation, where property taxes are much lower.
“There are many houses that are now selling for $325,000, but with taxes of $10,000 or more per year figured into their monthly payments, those homes are pushed just out of reach for many potential homeowners,” said Abby Ceres-Buda, an agent with ERA A.J. Cali Real Estate in Hawthorne.
The fact that many would-be buyers are carrying a lot of debt is also a barrier, because lenders have gotten much stricter since the housing boom, demanding that borrowers prove themselves credit-worthy.
Even those who are able to get mortgages often have to make compromises because of the area’s high prices — settling for a condo instead of a house or a tiny lot instead of half an acre.
And some buyers, like the Chabuses, compromise on location. Kate Chabus works in New York City, and her husband caters a lot of events in New York and Long Island, so they would have preferred to stay in Bergen County.
Buying in Morris County means “we’ve tacked on another half-hour to our commutes, and that’s without traffic,” she said. “We’ll see how it goes.”
E-mail: lynn@northjersey.com and sheingold@northjersey.com