2011 May 19th

20% Down Required to Buy in Hoboken?

Here is a message from the National Association of Realtors:

Take Action on 20% Down

As you may know, there is a proposal before regulators to require a minimum of 20 percent down on all residential transactions. If allowed to take effect, the rule would put home ownership out of reach for middle-income Americans. It would take the average family 14 years to save up the down payment to buy a home. We just don’t need more hurdles. So please take time to visit the REALTOR® Action Center to answer the Call for Action and tell Congress this does not work for our industry or our country.

Listen to the full President’s Podcast >

I am not so sure that requiring 20% down is a bad idea.  Is it bad for realtors and the real estate business?  Sure.  But there are way too many realtors out there today and anything that thins the ranks so that only the competent ones survive is a fantastic thing, in my opinion.  Is it bad for the economy?  How can anyone look at the credit crisis of ’08 and not realize that risky lending was a huge component of the cause.  Of course, the banks were at fault, and the rating agencies and mortgage lenders, too.   Yet this sense of entitlement to buy a home even when you can’t afford it does not sit well with me.  What do you all think?

Posted by Lori Turoff | Currently 37 Comments »

2009 Jan 10th

So Just How Bad Is The Hoboken Economy?

By Lori Turoff 


Is A Market Turn Around in Sight For Hoboken?

I attended a week-long real estate conference last week put on by Inman News.   Thursday a panel of preeminent journalists, economists and bankers discussed the state of today’s real estate market and various proposed solutions to the credit crisis and the economy in general.  They did not paint a pretty picture.  Nor could they agree on much other than the fact that things are probably going to get worse before they get better but they will eventually get better.  

When Does Trickle Up Begin?

An interesting comment was made about how to know when the real estate market has hit bottom and will begin to recover.  That happens, it was suggested, when in a given local market a typical first-time home buyer earning an entry level salary can afford to buy a home.  That creates a push in demand at the low end of the market which will initiate the change.  The demand will then trickle up to the higher priced properties.

Who Can Afford A Hoboken Condo?

That got me thinking about Hoboken.  The basic Hoboken starter condo in Hoboken sells for about $300,000.  You know the unit – about 600 square feet, 10 unit walk-up building with two long, narrow units on each floor.  Most of the units at this price-point have been renovated but would not be considered luxurious.   The building probably has a common yard, washer/dryer and storage in the basement.  You probably can’t live on Hudson Street for $300K but Willow, Park, Adams, Grand, Madison and Monroe are lined with these types of properties. 

A first time home buyer purchasing a primary residence can get a 30 year fixed-rate mortgage today for as low as 5% and that may soon drop down closer to 4%.  To qualify for the low rate, the buyer has to have a credit score of over 760, verifiable documented income to service the debt, and has to put 20% down, but we’ll get back to that part later.

So lets say our young Hoboken buyer works in Manhattan in an entry level job in finance, fashion or media.  He or she probably earns $60,000 to $65,000 annually.  In a 25-33% tax bracket, that means about $3,300 a month take home or more. 

Hoboken Condo Math

 Let’s crunch the numbers (just estimates) for the buyer thinking about buying that $300K condo:

Total monthly outlay = $1,750

Rent or Buy?

In my experience, that is about the going rate for a rental of one of the type units described above.  So on a cash flow basis, the choice to buy is equal to what it would cost to rent.  The buyer would also get a tax savings of about another $400 to $500 per month bringing the net cost of owning a starter condo to about $1,250 a month.  Not bad at all.  There are many other benefits to owning over renting but that’s the subject of another post.

Brother Can I Borrow a Dime?

Where is the rub?  Well, we’re talking about a generation of post-boomers brought up in a world of easy credit and no savings.  How does the first-time buyer come up with the $60,000 downpayment?  Sure, wealthy parents willing to help out may be a solution but not all buyers are that lucky.  In all the years I’ve been selling real estate in Hoboken, I would estimate that 99% of my buyers bought a condo with a downpayment no more than 5 to 10%.  To avoid paying “PMI” they took out a  “home equity loan” or “piggyback mortgage” on the home they did not yet own for the balance and wrapped it into the mortgage. A year ago, getting 95% financing with no documented income and even so-so credit would not have been a problem.  

Show Me The Money

Even if Hoboken condo prices were to fall another 10% or 20%, (which I don’t believe is highly likely) the problem of the lack of savings among first time buyers remains.  Many of these 30-somethings are still paying off school loans, have car loans, and max out their credit cards to buy designer clothes, hi def TVs and the like.  In fact, we are now a country with a negative savings rate.  So how does this problem get resolved?  New legislation provides a federal housing tax credit of $7,500 for first time home buyers through July 2009 but I believe it will take more than that to get the ball rolling.

Help Me Out Here

Let me know what you did or plan to do if you’re a first-time home buyer.

What do you think? Do you have an idea for a solution to the mess we’re in?

Posted by Lori Turoff | Currently 48 Comments »

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