Residential Real Estate Analysis

New Jersey / New York Metro August 2011

Neanderthal Economist Research

NJ Property Tax Analysis and Home Affordability

Residential Real Estate Analysis

New Jersey / New York Metro August 2011
The Costs of Home Ownership

Neanderthal Economist Research

Principal 31% Prop Tax 39%

Interest 26% Maintenance 4%

Home Owners Insurance 0%

The break down of home ownership expenses, assumes a $400,000 home, 20% down payment, 4.6% 30 year fixed rate, $10,000 annual property taxes increasing 2% per annum. Annual home maintenance is $1,500 per year. Total cost over 30 years is $1M.

Residential Real Estate Analysis

New Jersey / New York Metro August 2011
Mortgage Rates and Home Prices
250

Neanderthal Economist Research

19.0 % 18.0 17.0

200

16.0 15.0 14.0 13.0 12.0 11.0 10.0 9.0 8.0 7.0 6.0 5.0
Ca s e S hille r Inde x NY Me tro, NS A 30 Yr FR Mortg a ge Ra te s

150

100

50

4.0 3.0 2.0 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11

0 Jan-75 Jan-77 Jan-79 Jan-81 Jan-83 Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01

Home prices vs mortgage rates

Residential Real Estate Analysis

New Jersey / New York Metro August 2011
Average Property Taxes Vs NY Metro Home Price Index
250

Neanderthal Economist Research

10,000 9,000

200

8,000 7,000

150

6,000 5,000

100

4,000 3,000

50 NY Case Shiller Index US Avg Annual Property Tax NJ Avg Annual Property Tax 0
Jan-75 Jan-77 Jan-79 Jan-81 Jan-83 Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17

2,000 1,000 0

The historical average annual property tax bill for New Jersey and the Nation, respectively. Although there is a widening gap between New Jersey property tax growth vs the nations, NJ property tax growth approximates regional home price growth over the long term.
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Residential Real Estate Analysis

New Jersey / New York Metro August 2011
Average Property Taxes as Percent of Average Home Prices
250

Neanderthal Economist Research

3.0% 2.8%

200

2.6% 2.4%

150

2.2% 2.0%

100

1.8% 1.6%

50 NY Case Shiller Index NJ Avg Annual Property Taxes as a % of NJ Average Home Prices 0
Jan-75 Jan-77 Jan-79 Jan-81 Jan-83 Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17

1.4% 1.2% 1.0%

This chart displays the average annual property taxes for New Jersey as a percentage of the NY/NJ Metro average home prices.
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Residential Real Estate Analysis

New Jersey / New York Metro August 2011
Average Property Taxes As % of Income
14.0%

Neanderthal Economist Research

12.0%

10.0%

8.0%

6.0%

4.0% US Avg Annual Property Tax as % of Income NJ Avg Annual Property Tax as % of Income 2.0%
nJa 75 n Ja 7 -7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 -7 -8 -8 -8 -8 -8 -9 -9 -9 -9 -9 -0 -0 -0 -0 -0 -1 -1 -1 -1 an an an an an an an an an an an an an an an an an an an an J J J J J J J J J J J J J J J J J J J J

This chart displays the average annual property taxes for New Jersey as a percentage of income.

Residential Real Estate Analysis

New Jersey / New York Metro August 2011
Neanderthal Total Home Cost Index
250

Neanderthal Economist Research

0.50

0.45 200 0.40

150 0.35

100

0.30

0.25 50 NY Case Shiller Index Neanderthal Total Home Cost Index 0

Jan-75 Jan-77 Jan-79 Jan-81 Jan-83 Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17

0.20

0.15

NJ Homes Are Affordable: Historically low interest rates and home prices that have dropped 25% since 2006 create reasonable home carrying costs, as a percentage of average income. Total Home Cost Index Includes mortgage principal, interest and property taxes. Assumes a 20% down payment.

Residential Real Estate Analysis

New Jersey / New York Metro August 2011
NY Metro Case Shiller Price to Rent Ratio
0.90

Neanderthal Economist Research

0.80

0.70

0.60

0.50

0.40

0.30
CS NY Me tro P ric e / NJ OE Re nt In de x

0.20
Dec-82 Dec-84 Dec-86 Dec-88 Dec-90 Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-14

Prices to rent are normalizing near the long term average.

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Residential Real Estate Analysis

New Jersey / New York Metro August 2011
CS NY Metro Home Prices to NJ Median Household Income Ratio
7

Neanderthal Economist Research

3
CS NY Me tro P ric e to NJ Me d HH Inc ome

Home prices remain elevated, as a percentage of income, partially because mortgage financing costs are at historic lows.
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Jan-84

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Residential Real Estate Analysis

New Jersey / New York Metro August 2011

Neanderthal Economist Research

End

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