167K * pow(1.08, 2) * pow(1.1, 4) is roughly 285K
167K * pow(1.08, 2) * pow(1.15, 4) is roughly 340K
167K * pow(1.08, 2) * pow(1.2, 4) is roughly 404K
According to Zillow, the median sales price in January 2002 was around 235K, and grew to about 300K by January 2004. That's nearly 30% appreciation over that 2 years (which is roughly 15% per year). The median sales price similarly rose from 300K to 477K by January 2006 (which is nearly 60% [or 30% annually]). So, housing prices in the 400s shouldn't be surprising at all.
In the Midwest (where I'm originally from), property values typically appreciated by 3% to 5% annually, and many (if not most) couples there--with their incomes combined--make less than 100K. So, to many of them . . . guess what . . . you're rich. Of course, many people living on either coast will argue that I'm not comparing apples to apples, and they'd be correct. 140+K spends differently in Nutley than it would in Cleveland. 50K in NYC spends like 20K to 25K in Cleveland or Detroit.
Nevertheless, none of this stuff matters in the end. Housing prices, like stocks and airplanes, go up and down; many people get killed speculating. The price is the price. Although you lack the ability to set the median sales price or to control the direction in which it will move, you do have the ability to choose the price you're willing to pay for property. The seller will agree to sell the property to you for that price if you're blessed.
I want to validate you and say you make total sense. And I applaud you for stepping back and asking questions. I am going to try and answer this in a couple of different parts to try and make some sense out of this for you.
When people listen to the real estate market analysis on the news, the majority of the market segments are generalized down to a "national" market. But real estate markets are not national. They are all different in each local segment. And, of course, the local markets are tied to the local economies. I just ran some quick numbers for 2000 to present in all of Nutley to help with this... (* closed average sale price in January for 12 months back archive report from GSMLS)
2000 avg S.P. $187,990
2001 avg S.P. $237,346
2002 avg S.P. $274,803
2003 avg S.P. $318,319
2004 avg S.P. $356,135
2005 avg S.P. $403,463
2006 avg S.P. $416,285
2007 avg S.P. $392,402
2008 avg S.P. $387,920
If you look at those numbers, in 2001, the Nutley real estate market jumped a huge 21%. In less than a decade, even though housing has dropped a little bit in the last 2 years, the market still more than doubled. And, if you average out the percentages, it still comes out to about 8% per year increase (even with the 21% increase in 01 and the decrease of 6% and 2% in 07 and 08 respectively).
With Nutley you also need to take into account the New York City market. Manhattan (based on articles I have read-including Crains) did not start seeing its market depreciate until 2008. This helps your area hold value. When people can't afford NYC, they tend to look outward-what I like to refer to as the "rings" (the rest of the boros, or Hoboken/Jersey City). When they want more land, more suburban or rural living or they want to spend less, they still continue to move further away from the city. I know people who commute to NYC from the Poconos (by car) and Philadelphia (by train). Additionally, you have several other hubs in NJ that people commute to. In northern NJ there is (of course) Newark, Paterson, and Parsippany/Whippany. With the stock market dropping to 1997 levels, you will probably see more drops in our local real estate market prices. Especially since the NYC employment market is about 30% financial.
Couple that with people "flipping" up - taking the gained equity in their current home and trading up to larger, better homes (which some did every 2 years), and you have now created a broader market for houses. Less inventory means higher prices. And of course all of the people who shouldn't have purchased homes but did and stretched themselves with hybrid adjustable rate mortgages... don't get me started...
Bottom line, the simple principle of supply and demand.
Ok... that was my rant on the real estate market.
Now, for Obama's plan, this is again taking an average national economic market. And I'm not an economist, but I can comment from a standpoint of homeownership. In the NY tri-state area, you are not rich. Not by any sense of the imagination. Just because of the cost of living. That's as simple as I can make it. Typically, depending on your lifestyle, housing should be about 1/3 of your total expenses (so technically you can afford a home in that range). Even though I've seen people go as high at 50% (against my counselling) on no doc loans. But that is what got us into this mess in the first place. People stretch themselves because you still have to live somewhere. And they are tired of paying rent and not getting anything out of it. It's these entry level homes that Obama is targetting. The foreclosures, preforclosures and short sales. And just because you can afford these properties (technically), it doesn't mean you should buy that much. If you are really interested in buying in Nutley AND you don't want to spend your high limit, there are 29 properties available from $110-300k. So you can conceivably spend 1/3 of what you qualify for, own a home and still be in a comfortable range (although a lot of people I have worked with would stretch themselves to the high, just so they could get the better house).
With interest rates as low as they are, and inventory high it give you a lot of choice. So it really is a great time to buy.
I know this is a lot, and probably too much for a post, but I wanted to try and give you as much as I could in a short amount of space. If you have any further questions, please feel free to contact me directly.
Good luck! I'm sure based on your cautiousness, you will be a great homeowner--eventually!
Lisa Tempesta, Broker-Salesperson
Coldwell Banker Residential Brokerage / 2200 Rt. 10 West, Parsippany, NJ 07054
(973) 267-3030 x 129 / (973) 267-4161 fax / (973) 668-6322 cell
skype id lisa.tempesta / text 9736686322
connect with me on linkedin.com / plaxo.com / facebook.com
If you need help, I am always available
Look forward to hearing from you
I calculated the median prices vs incomes for Bloomfield thru 2008 and they are more in line- $65,000 and $300,000. Prices are down in Bloomfield more than in Nutley. Like any market model, demand and supply is at work. Good question though. Carl
Back to the question at hand - don't get me started on the definition of wealth, how in the heck I am rich when I can barely get a meal on the table I don't know - so I share your frustration on that point and hope that America in general will start waking up to the crisis ahead. In addition to the job situation, stock market mess and real estate uncertainty, property taxes are crushing many communities.
The one positive thing is this Joe, the convergence of low prices and low interest rates is unusual and IF you are in the position to buy, then this combination creates a buying opportunity that is uncommon by historical standards.
Good luck to us all!
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