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Home Price-to-Income Ratios

jchs.harvard.edu

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Re: Home Price-to-Income Ratios

#61

Post by cjhopman »

mikeyouse wrote: post #33
bcrosby95 wrote: post #18

Earlier quoted context omitted.

I doubt you can lay all the blame on prop 13. It passed because CA home prices went crazy in the 70s. My parents bought a home in 1973 for $34k and sold it for $95k in 1978 (the year prop 13 was enacted). A 3x increase in 5 years.

Just out of curiosity, I tried to 'ground' those figures to median income to compare against what's happened in the past few years. Per the US Census[1], median income in 1973 was $10,500, so the price of your parents' home increased by 3x median household income. Looking at a completely unremarkable house in the sunset of SF on Zillow[2]. It sold for $1.725M in Nov of 2019 after selling for $997k in June of 2014. Ho…

That's a bad example, that home was completely remodeled between the two sales.

Re: Home Price-to-Income Ratios

#62

Post by xmprt »

H8crilA wrote: post #20

There is no bubble in technology looks at TSLA $650

I'm not a TSLA shareholder because I don't really understand how the company is being valued but I also wouldn't be surprised if the stock price goes beyond $1000 within the next 2 years.

Re: Home Price-to-Income Ratios

#63

Post by pedrosorio »

jmpman wrote: post #29
bequanna wrote: post #4

Comparing income vs median sales price across time isn’t quite as interesting as income vs. total monthly payment (principal + interest).

I’d say it’s more interesting to look at recent immigrants income vs monthly payments. Existing residents aren’t necessarily buying new houses at 8x multiples. And the new arrivals to an area might be tech workers pulling in $400k, and can afford that $1.2M house with just a 3x multiple.

I'd say it's more interesting to look at income-after-taxes vs monthly payments.

The same payments/gross income ratio for a worker earning a median salary is a lot better than for someone earning $400k (as the payments to net salary ratio for the latter is higher).

Not to mention the probability of sustaining the income at the current level in the next 20 years is probably different as well.

Re: Home Price-to-Income Ratios

#64

Post by imtringued »

zik wrote: post #36
mdasen wrote: post #26

Earlier quoted context omitted.

Housing supply has been increasing at far lower levels recently than it has historically. Lots of good jobs have been flooding certain cities and which means people with the money to bid up the existing stock. Since people are coming for the jobs and they have money and there isn't new housing to soak up that demand, those people end up bidding up what supply exists.

I don't think it's as simple as that. In Australia we've had a massive housing boom and consequently the market has been flooded with houses. Strangely this hasn't led to lower house prices. There's a large amount of housing which is purchased and is sitting empty, mostly investment properties which people bought with the intention of re-selling at a much higher price so they're not concerned about renting them out.…

Why does that matter? If no one can afford the property then the current property owner will make a huge loss.

Re: Home Price-to-Income Ratios

#65

Post by AWildC182 »

maerF0x0 wrote: post #52

This data makes me wonder why taxation doesnt take CoL into account? "Lower" salaries in the Bay Area are upper tier tax brackets.

This is a feature, not a bug. This helps prevent everyone from completely piling on top of desirable places and further driving prices up, as well as effectively subsidizing poorer places cover the remaining 99% of the US.

Re: Home Price-to-Income Ratios

#66

Post by jjtheblunt »

thatfrenchguy wrote: post #28
newnewpdro wrote: post #19

Earlier quoted context omitted.

By far the majority of renters I know in CA, in SF and Santa Monica, have largely abandoned any hope of homeownership and live incredibly spendy lifestyles while they can afford to be in the area. Eventually, they will wise up, move out of their expensive rentals and turn frugal - likely outside of these cities with a good possibility of leaving the state. In their absence, new young folks in their high-earning high-…

> supply fresh, gullible, overpaid talent, working not just to pay high rents but high everything, including state income tax, while saving very little IDK, most people in know in California seem to be saving 30-50% of their post tax income. That's clearly not the case anywhere else in the world.

Would that mean that, since California + Federal taxes are something like 46%, post tax income is roughly 54% salary?

If so, they're saving only roughly 15-25% income?

Re: Home Price-to-Income Ratios

#67

Post by sien »

OJFord wrote: post #34
Jaygles wrote: post #24

I almost don't want to buy property as a protest to the horrible policies we have regarding basic necessities. Why should property owners be entitled to a major portion of my productivity/success? I'll rent the cheapest apartment I can find until the next housing crash or we have some sensible policy put through that negates the investment aspect of housing.

Is property ownership a basic necessity though? Or is its prevalence as an ideal a product of a burgeoning middle class through the last century? I understand it's not even so common (or common as a goal) now in continental Europe, they think it's some silly English thing to care so much about home ownership.

Living somewhere is.

Rents are also high in these very high cost cities.

Continental Europe has places with higher rates of home ownership than the UK.

https://en.wikipedia.org/wiki/List_of_countries_by_home_owne...

Norway - 82%

Spain - 78 %

Italy - 72%.

All higher than the UK at 64%.

Re: Home Price-to-Income Ratios

#68

Post by JauntyHatAngle »

JMTQp8lwXL wrote: post #54
sien wrote: post #38

Earlier quoted context omitted.

In the late 1980s Australian interest rates were 17% so the repayments required were much higher on the same level of debt. However, your point in general stands that houses in Australia are much more expensive than they were 30 years ago. But a better metric is the proportion of income required to pay for a house. It's also worth noting for Australians and Americans that these housing cost issues are a global issues…

You could've just saved the 3x income and paid cash if you wanted. Today, it's a much longer path to use frugality to build up the pile of cash needed to buy a home outright.

And indeed, buying a home outright would sometimes be impossible depending on when you started saving. E.g. If you tried saving to buy a house outright in the 00's in sydney, the cost of housing would increase faster than you could save.

Re: Home Price-to-Income Ratios

#69

Post by bradlys »

While we're on this subject - does anyone know how median household income is actually calculated within the USA? I feel like there's some weird distortion bubble within the bay area because I've seen the data on household income within the bay area and the amount of households under $100k/yr seems way too low. Individuals under $100k/yr would make sense but households? No - it doesn't add up.

For instance, the median household income in SF is around $100k/yr. By its own measure in SF - $100k/yr is considered poor for a household of 4. I have a hard time believing that somewhere around 50% of residents in SF are poor.

I feel like something is off with the way this is measured. How can it be that a large amount of housing is SFH (can't be rented on a $100k/yr income), about half of people rent here (thus - half of people can't be prop 13 beneficiaries), and yet the median income is $100k/yr? The median rent in SF is beyond $2,500/month - which is the max a $100k/yr household can afford.

I've looked at the stats a bit and it just feels like the incomes are estimated to be too low across the board for households. I see way too many homes/apartments where there are 3+ working adults.

If I look at all the people I've worked with or socialized with - I can't find a single one where the household income was below $150k+. I know there's a bubble in terms of what I've worked with or interacted with - but the truth is that anyone below $100k/yr income was very likely renting with someone else. (Which would push the household income higher)

Re: Home Price-to-Income Ratios

#70

Post by treebornfrog »

souprock wrote: post #58
thundergolfer wrote: post #22

In late 1980s Melbourne, Australia my dad and his best friend were accountants and bought their houses for ~$40,000AUD, ~3 times their annual income. According to the best friend, this was considered a lot to pay for a home. In 2020, those houses are around ~$1.8-2M, so ~22.5-25 times the annual income of someone that has their job today. In Melbourne and Sydney generally, housing is 10 and ~13x annual income. Above…

You picked the wrong Melbourne. The one in Florida is a far better deal. Median household income is $40,000, and the median house is just $150,000. The house is 3.75 times the income. Of course, it is even lower for the typical people here on Hacker News.

Are we looking at income post tax here?
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