Eddie and Meg work hard to manage their money.
With sizable salaries, good savings, an investment property and an 18-month-old child, the Middlesex County, N.J., couple wants to make sure they’re doing the best with their resources.
“Our main goals are a debt consolidation mortgage to reduce costs, college planning and retirement,” Eddie, 34, said.
The couple has stashed away $214,504 in 401(k) plans, $54,736 in IRAs, $180,151 in brokerage accounts, a $35,000 COD, $25,000 in savings and $4,000 in checking. They also own a rental property from which they receive income, and their debt consists of two home mortgages.
The Newark Star-Ledger asked Mark Reddy, a certified financial planner, to help the couple assess their finances.
“The financial future for this family is promising for two significant reasons,” he said. “They live well below their annual incomes, and with the annual savings, they started contributing significantly to their retirement accounts when they were young. These two financial habits will serve them well over the long run.”
The first issue to tackle is mort gage debt. The couple has a $230,000 New Jersey mortgage on their home, a 30-year, fixed-rate loan with a rate of 5.875 percent. On the investment property, which was purchased in January 2006, there’s a $291,000 five-year ARM at 6.5 percent.
They have $79,000 of equity in the rental property, but the property has a negative cash flow of $977 per month, which the couple hopes to sell in 5-6 years. Reddy says the housing market in New Jersey is finally slowing after years of big appreciation, so selling the property a few years down the road may not produce the profit the couple was hoping for.
In fact, if mortgage rates continue to decrease further, there may be an even better opportunity for the couple -to reduce monthly costs by refinancing.
Reddy says the option of paying off the mortgage on the rental through mortgage refinancing on the primary home, then combining the two loans into one mortgage, may not reduce the monthly cost by much. Also, there are restrictions on the tax deductibility of home equity interest of $100,000 or more of home equity debt.
“I am generally opposed to negative cash-flow properties, but if they are confident in the future prospects of the property, I would advise to sit tight for now and sell when they feel the time is right,” Reddy says.
Despite the fact that numerous residents are having problems paying off their New Jersey mortgages these days - resulting in increasing foreclosures around the state - home sale prices in many regions are taking off.
Take the Jersey Shore: After a slight dip in the second quarter of 2006, median home sale prices in the sector rose 7.3 percent in the third quarter, the National Association of Realtors and The News Journal reported Monday.
The median sale price for an existing home in the region that encompasses Monmouth, Ocean, Middlesex and Somerset counties was $415,100, up from $386,900 in the same quarter last year, according to the association.
“The fact that it is up rather than down is at least some sort of hint that the area is not suffering greatly, at least yet, from any major price pressures,” said Joel Naroff, chief economist at Commerce Bank. “That is not to say that I don’t think it might happen.”
Due its popularity as a vacation destination, the region is rarely in trouble. People pay high prices for a second home mortgage around the beach.
Other areas of New Jersey saw increases in the third quarter as well. The median price in an area that includes Bergen and Passaic counties was $558,600, up 4.7 percent from $533,600. The median price in Union, Hunterdon, Morris and Essex counties was $455,400, up 1.9 percent from $446,800.
Economist James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, said the median price increase may indicate that fewer moderate-price homes are selling.
The number of homes on the market remains high, he said.
“It was during the third quarter that there was starting to be a realization that the boom was history, but I think we still have people who refuse to sell at the new prices,” Hughes said. “That is why you have a lot of unsold inventory or people actually pulling their houses off the market.”
As overpriced homes come off the market, they are being replaced with houses at a more “modest price level,” said Albert S. Veltri, president and chief executive officer of Veltri & Associates in Toms River. These appeal to those in need of adjustable-rate mortgages and lower initial payments.
“As that transition happens, the market will begin to build up more steam,” Veltri said.
So far this year, the average sales price of a single-family house in the Monmouth-Ocean Multiple Listing Service rose 4.2 percent, said Maureen Penta, general sales manager at Diane Turton, Realtors. The average sale price was $486,521, up from $466,878 for the same period last year.
The number of homes sold so far this year has fallen to 9,212, Penta said, citing listing-service figures. That’s down 19 percent from 11,339 in the same period last year.
Prices are stabilizing, but some sellers are still reducing prices.
“People who have been sitting with their home on the market for an extraordinary period of time obviously are reducing the prices of their houses,” said Christina Banasiak, president of the Monmouth County Association of Realtors.
Yet some homes, which are priced correctly, are getting multiple offers, said Banasiak, assistant office manager at Weichert Realtors in Marlboro. “It’s happening so if a house is priced right, and it’s a good house in decent condition, it’s still going to sell.”
The key is setting the price correctly when a home is first listed, Veltri said. This is the best way to ensure it stands out to possible mortgage applicants.
“Houses that are priced high and start to come down, they actually become invisible to buyers,” he said.
Posted by Jed Moss on Nov 22 2006 under New Jersey
Take the popularity of adjustable-rate mortgages, add in a slowing housing market, mix with a strong dose of high energy costs and, in some parts of the U.S., a high unemployment rate… and what do you get?
The perfect recipe for a foreclosure surge.
Several firms that track foreclosure activity have released data in recent days that show more and more homeowners are missing mortgage payments, are in danger of losing their homes or are in the process of losing them altogether, the Trenton Times reported Sunday.
It may be getting tougher for many New Jersey home owners to meet mortgage payments, but the real estate market has yet to be overwhelmed by foreclosures.
“There’s no question the rates are going up … (but) I think people are looking for the sky to fall, and it’s not,” said Mark Vitner, a senior economist for Wachovia Bank.
RealtyTrac, a firm that collects foreclosure stats, says more than a million homes across the U.S. - one out of every 1,001 - have entered foreclosure so far this year, up 27 percent from last year. And the 115,568 properties under threat of or in foreclosure in October was the highest month so far this year, representing a 42 percent increase over October 2005.
Against this backdrop, New Jersey cracked the top 10 in states for the first time in October. Last month, 4,904 New Jersey homes — or one out of every 675 — was in the foreclosure process.
Overall, New Jersey may be faring better than other states, however. Florida and Colorado mortgage loans are becoming a bigger problem for the cash-strapped residents of those states with resetting ARMs. Things could be worse, however. Nationally, the number of homes in the foreclosure process is up just 5.3 percent for the first 10 months of the year.
The actual rate of foreclosure remains relatively low — about 0.3 percent in New Jersey, according to the most recent data from the Mortgage Bankers Association. In comparison, the foreclosure rate in the early 1990s, hit by the housing market crash in the late 1980s, was around 5 percent.
“We’ve had a number of variables in the market. Prices aren’t appreciating as much as they were before. That’s hit speculators hard, and mortgage rates are also higher. The economy is slowing,” Vitner said.
Analysts say a big reason for the huge increase in foreclosures is the popularity of adjustable-rate mortgages and other exotic loans, which offered low rates for the first few years, but have adjusted up as interest rates rose. Those types of home mortgage loans lured many people into the market who, without a lending gimmick, would not have been able to afford their homes.
But while many expect the rate of delinquency to climb, we are not seeing a crash-and-burn scenario. Foreclosures represent a small part of New Jersey’s market — 1,200 houses out of 65,000 for sale. The jump is happening at a time when the market has seemingly hit bottom and is poised to bounce back.
Other areas can’t say the same thing. After years of booming sales and real estate values, Nevada mortgage holders are defaulting like never before, as the Silver State has come in second for five straight months in foreclosure filings. A large number of investors driving up prices and then bailing on properties has skewed the markets in states such as Nevada.
