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Home Price-to-Income Ratios

jchs.harvard.edu

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Re: Home Price-to-Income Ratios

#111

Post by greedo »

JimmyAustin wrote: post #50
OJFord wrote: post #34

Earlier quoted context omitted.

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.

Australian tax law is incredibly geared towards home ownership, and the culture of owning your home is very, very strong. See https://en.wikipedia.org/wiki/Australian_Dream . Personally, most of the people in my age cohort (mid 20s) who've bought homes, have bought in areas considerably further away from the city than they were raised.

I think this is an expectation thing. We grew up in houses that our parents owned in their 40-50's, after building their careers and wealth. Yet we expect to buy them in our 20s. That doesn't align with where my parents were in their 20s.

Re: Home Price-to-Income Ratios

#112

Post by e1g »

scarmig wrote: post #51
bequanna wrote: post #42

Earlier quoted context omitted.

Intuitively, I would say the number all cash buyers is a pretty small number in every market. Especially in a low interest rate environment. Most people with the means to pay cash for a property would likely be savvy enough to understand that that they would be better off getting a jumbo mortgage at 3.25% and deploying that capital at a higher rate elsewhere.

IIRC San Francisco all-cash buyers were accounting for 25% of transactions a couple years ago.

Manhattan is usually at 50% all-cash. Recently it softened to 40%+, but still much higher than intuition based on everyday-folks might suggest.

Re: Home Price-to-Income Ratios

#113

Post by thorwasdfasdf »

ggm wrote: post #73
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…

I'm one of your dad's generation and we like to call this "inter-generational theft" because it kind-of sums it up: the spending patterns we established, are predicated on leaving our kids (and grandkids, probably) worse off. Not because of a debt burden, there is nothing wrong with long term public sector debt financing. The problem is the asset bubble in home ownership prices. We should have 10+ year secured reside…

3-5% is unrealistic. in the long long term, housing prices can't exceed inflation (roughly 2%). and if we were to actually make progress in building houses/shelter, then it would be even less than inflation.

Re: Home Price-to-Income Ratios

#114

Post by bradlys »

thorwasdfasdf wrote: post #97
bradlys wrote: post #69

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 media…

gotta remember 75% of SF is rent controlled. Plus, if your income is below 60% or 40$ of median income you can get nearly free housing from subsidized housing.

But this applies outside of SF too - I used SF as a relatable entity. Santa Clara and plenty of other cities without rent control are the same.

Subsidized housing is not very common within the bay area. I doubt 20%+ of people are living in that...

Re: Home Price-to-Income Ratios

#115

Post by mNovak »

For anyone wondering how these price multiples translate to a fraction of median annual income paid on mortgage..

Briefly poking around a mortgage payment estimator (assuming 20% down, 3.75% 30 year fixed rate), annual mortgage payments come to roughly 7.2% of purchase price (including tax and insurance). Slightly higher towards $100k price (7.8%) and slightly lower towards $1.5M+ (6.8%), but lets say 7.2%.

So, for a house priced at X times median income, you're paying 0.072X of annual median income every year into mortgage payments. 2-3x in the chart means 14-21% of income spent on mortgage. 8x means 57.6% of median income spent on mortgage. (Quick reminder that 20% down on an 8x house is 160% of median annual income in the first place)

Re: Home Price-to-Income Ratios

#116

Post by sgc »

gowld wrote: post #85
ggm wrote: post #73

Earlier quoted context omitted.

I'm one of your dad's generation and we like to call this "inter-generational theft" because it kind-of sums it up: the spending patterns we established, are predicated on leaving our kids (and grandkids, probably) worse off. Not because of a debt burden, there is nothing wrong with long term public sector debt financing. The problem is the asset bubble in home ownership prices. We should have 10+ year secured reside…

What happens to those houses when you die? Are they mortgaged with no equity? If you leave an inheritance, you are giving the wealth back/forward.

And what happens when people live longer and longer, so that people have lived a longer percentage of their lives without that influx of assets? It is perfectly common for 60+ year olds to still have their parents living. That will stretch to 70 year olds, and so on. There is a demographic concern that needs to be acknowledged in order to develop societal solutions that provide even basic opportunities such as home ownership at an age when you are raising your own family.

One potential contribution to a solution would be to tax investment properties/second homes at a very different rate than primary dwellings (which should be taxed at as close to 0% as is practically possible). This would help reduce compounding the effect of demographics with investment portfolio concerns. If governments are to be at the service of their citizens first and foremost, it makes sense to me that they also have a specific tax rate or other restrictions on property ownership by foreign investors. If those things are not legal, then laws should be changed. They exist in some form in many countries, but not all. I doubt those opinions are popular, but at least they are worth thinking about.

Re: Home Price-to-Income Ratios

#117

Post by leetcrew »

arebop wrote: post #78
OJFord wrote: post #34

Earlier quoted context omitted.

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.

It is a basic necessity to have physical space in which to exist. Property ownership of course isn't strictly necessary; renting is a fine way to satisfy this need. But how can rent prices remain very far below the price to own? In prior generations, rent was a way to express a preference about longterm vs. short term occupation of a given space, or it was a way for people with relatively little credit or capital to…

> But how can rent prices remain very far below the price to own?

I'm guessing you meant this rhetorically, but it relates to something I've been wondering for a while. in very expensive areas, you tend to see a very high price-to-rent ratio. even if you could afford to buy, it might not make sense economically unless you plan to hold on to that house for a pretty long time.

I've been trying to learn more about why high price-to-rent seems correlated with expensive areas, but it's kinda tough to google for when all the hits are just practical guides to help you decide between renting or buying. if there's some deeper connection, it may that rent stays well below the price to own for a long time.

Re: Home Price-to-Income Ratios

#118

Post by thundergolfer »

gowld wrote: post #85
ggm wrote: post #73

Earlier quoted context omitted.

I'm one of your dad's generation and we like to call this "inter-generational theft" because it kind-of sums it up: the spending patterns we established, are predicated on leaving our kids (and grandkids, probably) worse off. Not because of a debt burden, there is nothing wrong with long term public sector debt financing. The problem is the asset bubble in home ownership prices. We should have 10+ year secured reside…

What happens to those houses when you die? Are they mortgaged with no equity? If you leave an inheritance, you are giving the wealth back/forward.

> you are giving the wealth back/forward.

But it's now much more concentrated. Over time my family and dad's best friends family have ~5 houses and apartments each. When they die there'll be ~5 places split between 3 children and 2 children respectively.

Easy to see how that's not rebalancing things much.

Re: Home Price-to-Income Ratios

#119

Post by rorykoehler »

thorwasdfasdf wrote: post #94
rorykoehler wrote: post #46

Earlier quoted context omitted.

It absolutely is a basic necessity unless you wish to remain a serf for life.

that happens anyways. if you own a home and have it paid off, you'll still be paying super high property taxes on that reallly expensive house. and with most 1st world governments taking in 40-55% of all income earned nationwide, we're all just serfs, at the end of the day.

I expect services for the taxes I pay. Paying taxes to my government is basically paying myself because I like living in a functioning society. If the government isn't doing a good job I'll try vote them out. Nothing like serfdom.
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