1. Supply vs. Demand. -
a. Look at number of houses currenly listed in Edison, NJ. Are the numbers increasing/decreasing every week/month.
b. When you go into a open house, how many customers are also in the house.
c. Trulia, Zillow provides how many days the house is listed on their website. Take a look types of houses you are interested in (townhouses/single family/condo, etc). Determine on average how long they are currenly listed before being sold or taken off the market.
2. Economic Crisis in the area -
a. There is hiring freeze in all financial firms. (Goldman, Morgan Stanley, Citi)
b. Citigroup to fire 53000 jobs. (please remember this is worldwide and not just NYC). Also most of them are NOT high paying executives.
c. Merrill to start laying off people starting 1st quarter in 2009.
d. Job losses in Lehman, Bear Stearns, AIG, etc
e. I do not know the answer to this but how many Wachovia branches will be closed in this area. Please determine.
f. Layoff numbers in Goldman Sachs, Morgan Stanley, JP Morgan.
g. Do you really think people will get the same bonuses this year.
3. Economic crisis in the country
a. Credit Freeze - Even though mortgage rates may go down, not everyone will get a mortgage as they did from 2002-2007.
b . What do the pundits (Ex: Warren Buffet) say about the economic crisis about the future.
c. Do you think the unemployment rate will go up or down. Although this number is for entire country, buyers will think twice before buying when theyl look at the numbers
d. How many do you think are first time home buyers in the area. No one would like to take a risk right now. Yes, prices have gone down. However, as a buyer if I think the prices will go down further, why not just wait.
Also one last comment. I am an employee of Citi. I have decided to hold off buying a house as I do not have confidence that my job will last for another year. And if I do lose my job, I know no other financial firm is hiring and I will have tough time finding a job. In the last 2 weeks, workforce in Operations team in my department was reduced by 5%. All were employees working in NYC. They were not executives, but hard working employees who just lost the job due to budget cuts. Currently no new projects are being funded due to economic outlook.
I have been looking for a house over a year now. I have spoken to few real estate agents and they tend to think that prices are stabilizing or will soon if they have not, ever since I sarted looking in 2007.
I think most realtors, are in this deam world that real estate market will come back to the 2006 highs, because of government rescue, low interest rates etc.
I think, based on my independent research and analysis, that majority of them are in the business for less than 10 years, since the real estate market started booming. Total number of real estate agents trippled in last 10 years. All of these who started in last 10 years have not seen anything but prices going up. People dont know that in last recession in 1982 and 1990, residential real estate prices went down more than 20-30%. Majority of them have very little idea about what economy has to do with housing market. They price the house for sale based on last 3 -6 months of comparable sale, which is a very poor method to price for such an important investment of onces life.
I think there are three most important compontent to price residential real estate: 1) Income to price ratio, 2) Availbility of Credit 3) Expectation of future price increase
1) Income to price ratio: This decides one's affordability. If you look at the hestorical trend for midean income to median house price ratio - it used to be around 3 times the median income. That means if someone made $100,000 that person can afford a house which is $300,000. That ratio is in the rang of 4 to 5 for most of the US now. That tells that prices are still too high.
2) Availability of loan - due to this credit crunch the banks are increasingly skeptical to give out loans to people as they used on between 2000 to 2006, which fueled this housing boom. They had a mortgage loan program for every one - even with No Income No Job (NINJA loans that they used to call it). To make things worst, banks are not going to lend to people with less than 20% down, which is a large chunk from someone's savings. If the house price is $400,000 then down payment alone is $80,000. Plus banks will want to have at least 3-6 months worth of living expenses on side (at least another $15,000 yo $30,000). Due to this factors there are a lot of people who will hold off or go slow on buying a houe or will be forced by banks not lending that easily to people.
3) Expectation of future price increase: I think most people will agree that the prices for real estate is not going to stabilize before the over all economy, job market etc. stabilizes. We all listen to media and whats going on right now. There is no major financial institution left which has not annownced to cut jobs. CEOs have lost jobs, companies are filing for bankruptcies, auto industry (big 3) needs bail out, people are talking Deprecission (search what it means.....if you dont know already) etc. In such a market condition, if someone thinks in there wildest dream, that the real estate market is going to stabilize soon (even after 1 trillion bail out that our new President Barak Obama will bring), they are in dream world. I told few of my friends in 2005 that real estate prices will come down eventually and they argued with me that if that would happen, banks would go bankrupt........look what happened in 2008.
The real estate boom we saw in this decade was, because of the gradual increase in wealth in United States after last recession of 1990, growth in the income of babby boomers, IT boom, etc. The real savings rate is negative now. In last 6-8 years people expanded their life style by borrowing. Since year 2000, there was no real economic growth. Jobs were shipped outside the US. Economy was growing because people borrowed money (against their houses) to expand / support their life style. (over leveraging). This was due to a primary assumption that their biggest investment - their house will be their nest egg, when time comes, as prices will keep going up for ever. Now since they realized that real estate prices can come down people will start saving.
This is my opinio - and no one has to necessarily agree with me.
You used to have a theory called 'Homes priced in crude oil' when crude oil prices were raising.
Now that it is not in your favor anymore, did you scratch that theory off?
Because, as per your theory, now that gas is $1.5 down from more than $4, home prices also need to be cut to a third of their peak price.
That said, given the determination of Fed to bring Mortagage rates to 4.5%, and the amount of money being thrown into the economy, I think we should see a nominal price bottom in the next 6 to 12 months.
But, real price bottom is at least 5 years away.
Everybody seems to think we have buyers on the sidelines. But,what we have is a lot of sellers on the sidelines. The only active sellers are REOs and foreclosures. Everybody else who want to sell is waiting for the right opportunity. Also, home builders have an unfair advantage over existing home owners. Copper prices are cut in to a third of their peak value. Land prices have also crashed. Home builders will be able to build homes at good discount to what they were able to at the peak. They won't actively drive home prices down, but they will keep a tight lid on prices and make good money at the expense of existing home sellers.
The parabolic move we have seen in home builder stocks in the last week is an indication of this.
It seems you don't know enough about IT consulting/contracting. A good % of hourly rate goes to middlema(e)n. So for example, out of $100, consultant only gets 60-70$ and after considering benefits it may come down to 50-60. Lets assume that a person is getting $100.00 and making $200k a year, that doesn't mean that person will be able to buy a house. Most of the IT professional who are renting in edison/woodbridge/iselin/jersey city area are working on temporary work visa call (H1b or L1/L2). Even a person is making 300K a year and on temporary visa would not think about buying a house untill he/she gets green card (permanent residency). If that IT person lose a job in this economic condition he will have to go back to his country because it is very difficult to find sponsers in this situation. If that IT person is born in India, it takes 6-10 years to get green card. Most of the IT people who already gave green card already bought house. There are some IT people who got their green card are ready to buy but they don't have enough confidence in this economy and market. They all think house in NJ are still overprised and many are moving to other states like PA, NC, GA and texas where they find job opportunities and better price for the house.
Also regarding contract renewal, it is very unlikely that most of the contract will be renewed in this economic situation where every firm is cutting jobs.
If few people bought using cash doesn't mean everyone will buy using cash. I have enough cash to buy house with 30-40% downpayment but what I don't have is confidence in this market and in the economy. And I lose my confidence more by reading posts/comments of yours and some other realtors like you where I see lots of ill-advice and mis-information. There are some very good realtor though. The realtor I am working with is great. She gives proper advice and have similar opinion about real estate market and economy what I have by doing my own research, what most of NAR economist have and what most of buyrs in this area have (ie totally different opinion that you and some other realtors have).
People will ultimately by house if not now may be with in 2 year or 3 year. But if you or realtors provide correct advice and information, people will respect you and will buy house sooner or later. You can not motivate people by painting of demands such as I found in your and other realtors' posts. But if realtors provide correct advice people will come to them sooner or later.
Last month we mentioned that for Middlesex County, both the median sold price and average sold price went up (+4.7% @ $320,000 and +6.7% @ $358,252 respectively) in January compare to December.
For February, the median sold price stays at $320,000. The average sold price decreased less than 3% ($348,449).
Both, the median sold price and average sold price for both months January and February are higher than December and >= to November (by $500). Are we seeing a bottom or a bottom formation? Next few months will tellâ€¦.I will graph those in my blog in the next few days as to provide a better visual.
However Edison is not following the same trend with February sold price being lower than January sold price. But as we mentioned last month, January sold price was $453,861, which was up from previous month (December 08) @ $426,121.
The average Sold price for single family property in Edison for January was $453,861, which is up from previous month (December 08) @ $426,121.
(Data from Middlesex MLS, single family only).
It takes 20 minutes to get in/out of Metro Park. Add that to door-to-door commute to NYC (it is easily 90 minutes today one way door-to-door not factoring the erractic NJ transit schedule).
Move out and enjoy the lovely NJ. There are better places where you get value for $$. Overcrowding one township does not help anyone in any case.
Everything you say seems rational.
But, we are talking about Edison specifically here.
Cheng has decided that all wall street firms will move from Wall street to edison and all new yorkers will sell their 1.2Mil condos and move to Edison and run up the condo prices in Edison.
He didn't really give any time frame though, so, I guess we will have to wait and watch.
If that really happens, I guess, home prices in Edison will raise instead of falling.
Cheng also has several other theories like that, because of which home prices in Edison will keep raising for ever and you will be priced out unless you really buy now.
Time will tell...
Why not ask Ken Kumar who just paid cash to buy 1935 Raspberry Ct Edison NJ 08817 1br 1ba at $203,000 and rented it $1,400 to IT professional. He also has another one, at least, when I ran into his other tenant.
So, if you think Yog is correct that he said " I had tough time to find professionals who take less than $100.00-$120.00 per hour rates. " Then, that means for those years, IT professionals making $200,000 to $240,000 a year, assuming they do not work overtime and just 2,000 hours a year.
Now, just take a quick guess, how many millions cash flowing around in Greater Edison Area per IT family? and that also answered the fact that many IT professionals decided to pay cash to buy 1br or 2br condos to rent out to their peer junior IT professionals and make some supplemented income in the area.
And, don't forget many IT professionals with spouse also working in IT, that is to say, even if they did not get $100 to $120 per hour contract, with $30 to $50 contract, they still make $120,000 to $200,000 a year! and of course, with 3 to 5 cash paid condos or townhouses rental supplemented, they make extra $100,000 a year.
I know an IT professional who used to put all his money into Bank of America, and because he had to rush to Wall St in early morning, and got home late, and weekend not around, going traveling. He never noticed BofA paying him less than 1% interest of his millions cash in the stupid checking account!!!!
Now, his contract finally ends, and had sometime to went thru his bank paper, he told me, wow! He was lucky that his millions cash are in checking account, NOT in stocks, especially, NOT in BoA stock :-)
When he asked me what to do, I told him, to put $200,000 in each bank (that's before $100,000 limit raised to $250,000, even not the $250,000 will end Dec 2009), and make them 5 year CD's making easy 5% interest, rather than 0.xx% (so stupid, and banks steals so much money that way).
Later, he told me that just the interest itself so far, he is making more hourly rate he used to be as IT professionals., and he still have million cash left... What other suggestions I have? I told him there are 3 savest investment, other than US government EE and Bank CD, the third one is rental. i.e. buying condos or townhouses to rent.
So, you are going to see that soon there will be 5 more condos to be sold. I told him, to buy as few bedrooms as possible can walk to NYC Train station because many IT professionals in Edison working in NYC started with no car and within walking distance is important. Also, most of tenants are looking to rent 1br or 2br condo, fewers looking to rent 2br or 3br townhouses.
Oh! by the way, IT contracts often ended Thanksgiving, and will resume after January. It is just the budget matter, and end of years, not too much to do, corporate can save some money. That is to say, as soon as January comes, many more IT professionals got notified with new contracts, you will see them finally make up their mind to buy nice house. They may not rush to buy million dollar house, but many of them will buy 2br or 3br townhouses trying to limit under $450,000, however, some have waited a few years more than they were supposed to, so some move up their limit to $550,000 to $650,000 giving the fact, they save much more cash for past 2 years.
So, you will see nice house like those at Gramercy Park at Piscataway http://gramercyparkatpiscataway.blogspot.com/ moving very fast ...
As to realtors, I personally think they are all knowledgable and licensed, knowing the law. However, each specialized in different area. So, if you happen to be interested in, say, 3 area, Edison, Piscataway, East Brunswick, for example, you may want to use 3 realtors, each specialized in one area, and do not mix them up. At the end, you may buy just one, but do not hesitate to refer your other buyer friends or colleagues to those other realtors specialized in other area that they are interested in.
Oh! don't believe me? Call your realtor to find out if The Commons of Piscataway http://thecommonsatpiscataway.blogspot.com/ just sold out!!! And, of course, Brookview Commons at Edison, Aspen Manor at Edison, ...etc also sold out. Waterford at Edison just sold 3 more, and will be sold out soon ...
University Heights at Piscataway also sold out, and many Rutgers parents going to buy at Society Hill at Piscataway which will be sold out after Xmas when they fly over for vacation to meet their Rutgers kids and made offers ...
At the end, keep in mind, many people own and buy houses in Edison does NOT work at Wall St. e.g. Danny who bought 5 condos in cash own property rented to Tawa Restaurant; he also own auto service in South Plainfield. And, Michael bought 3 units, from FL.
First of all, I think it's poor advice to tell someone not to trust an entire profession and do your own research because of a minority. Yes, you should do your own research, but people are experts for a reason. Would you do your own research and fix your own car because you don't trust mechanics? Would you represent yourself in court because you don't trust attorneys? Would you stop using banks because you don't trust bankers (because yes, they are a part of this mess as well). There are Realtors and Mortgage Professionals I would not recommend it asked because they don't operate honestly and ethically. However, there are others whom I would recommend wholeheartedly, and I believe others in the general public would do likewise.
Second, the advantage of getting a professional opinion is that Realtors who operate on a daily basis and have their eyes on the market, with access to a lot more market data, will have a sense of what is going on. While there are no guarantees, Realtors who know their market should know what's going on and be able to predict trends. It's part of what goes into pricing a home.
That being said, Wall Street has definitely had an impact on the market. However, I've seen a lot more recent activity in the 200-350K range since the Presidential election. My sense is that people were waiting to see the outcome of the election, and with the choice of Barack Obama, many believe that he will fix the economy. Whether this actually happens or not remains to be seen, but people are more hopeful, and as a result, they are making a move on purchasing a home (most of these are probably renters/first time buyers).
Granted, a lot remains to be seen in the months ahead. This trend could spark people being able to sell their homes and buy other homes, helping bring some recovery to the Edison area. Then again, it could be brief blip. I don't know about anyone else, I'll be following it closely and sharing the market trends (whether good or bad) on my blog.
Cheng's comments regarding IT professionals sounds like a joke to my ears. I am an IT professional and I interview lots of people for my company. For Java/.Net etc positions, I had tough time to find professionals who take less than $100.00-$120.00 per hour rates. Now I get lots of similar skilled professional ready to work with rate of $30.00-$50.00 per hours. There are thousands of people who laid off recently and unable to find IT Jobs.
Corey down below is misinformed. Wall St Executives..like the goledn parachute types.. yes, they live in mid-western, NJ. and we will see thier homes come on the market.
But, There are a tremedous anmount of Wall St. IT people living in the Edison area and if these people lose their jobs as mergers adn cutbacks are looming, it may affect the area. But, Will it dorp the prices dramatically? no, there will be some sell off.. yes.. But if you are waiting for prices to go to the 1999 - 2000 level... you can wait until the cows come home driving BMW'sbecause it ain't gonna happen.
Do you know around 1,000 homes sold in Edison in 2007 ? and would be more in 2008 ?
Do you know many home owners of Edison who worked at Wall St for yeard alrady paid off their mortgage? Do you think would they have pressure to sell their home?
Do you know many IT professionals based their home in Edison, e.g. kids going to schools here, and father take jobs all over the country?
Also, you may be surprised that the demand of IT professionals never this high due to the fact lots of Wall St companies merger and buyout, the computer systems needed to be integrated, so lots of extra openings going on in the area....
So, the conclusion with all the facts and knowledges, I believe Greater Edison Area will be continue to be very popular ...
Oh, forgot to mention one think that Rutgers Univ accept extra 1,000 students this year than supposed to, that will convert to extra housing demand in the area, and also Rutgers just announce to have Barnes and Nobel build a brand new 3 story store and manage RU's bookstores ...etc. So, there will be more booming in this area for sure ...
My guess is that home prices will fall a little but not by much, particularly if the bailout happens.
But if you are looking to buy a home as an investment, please make sure you calculate all the expenses that go into home maintenance and compare it with renting. If you come up with a number where renting is cheaper, it is better to rent.
Five years from now, you can probably sell the home for a slight profit, but after you account for all additional expenses, home improvements and realtor commissions, you would have lost a lot of money.
For home prices to appreciate every year, you need salaries to increase. The wall street meltdown will keep a tight lid on salaries for years to come
In my humble opinion, I forsee house prices stabilizing now. The wallstreet meltdown will soon be distant memory as our government comes to the rescue. Already mortgage rates have dropped due to the rescue of Fannie and Freddie a few weeks back. The coming $1 Trillion rescue plan now being debated will probably
be in place by election time and with the election and the swearing in of a new administration the bad times of the past year may quickly fade from memory and ordinary home buyers and investors will start to bid up the prices of homes again. I think the prices will really begin to rise by early next year to the point that it will make the front page of every newspaper. Edison will more than likely be the first to feel this up tick in home prices. If I were looking to buy in Edision I would do it now and not wait, BUT, I could be wrong.
If interested in getting a list of homes in Edison or anywhere else in NJ, don't hesitate to contact an agent, myself included ;)
Global Realty Marketing
Princeton / Somerville NJ
908 725 1960 (office)
732 986 7732 (cell)
There is no crystal ball as Jillian states. What there is out there now are smart investors and home buyers that know a good deal. Educate yourself on home prices in the area you are looking, if sales were at 600k... well, I'd bet you are not going to find a property at a bargain basement price of 250k.. Edison NJ is not Florida, not Ohio, not Georgia... the schools are good and close to commuting to NYC. But I am sure there is a property or two maybe three that are down 75 - 100k since the upside of the market.
Let me know what your criteria is for a home and your desired price range and we can look at what is out there and find a good buy.
Broker / Manager
Orange Key Realty
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Jillian Mason-Sales Associate
Orange Key Realty
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Freehold, NJ 07728