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Home Price-to-Income Ratios

jchs.harvard.edu

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Re: Home Price-to-Income Ratios

#121

Post by leetcrew »

rorykoehler wrote: post #46
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 absolutely is a basic necessity unless you wish to remain a serf for life.

why? there's nothing inherent about owning a house that protects you from having all your surplus income siphoned away. if most of your wealth is tied up in the house, you are still vulnerable to property tax increases from appreciation on the home. not every state shields you from this to the extent that california does, and even california could change the law at some point in the next several decades.

I'd much rather be renting and have $300k in a diversified portfolio than own a $300k house and no other assets.

Re: Home Price-to-Income Ratios

#122

Post by neilparikh »

thorwasdfasdf wrote: post #110

for some reason, it's getting harder and harder to build shelter. Shelter is becoming increasingly expensive and increasingly less affordable. This is in stark contrast to the progress that humanity has made in many other industries. I think it's about time we started asking why. Most people don't understand why. Why is it so hard to build shelter. Why is something we've done for hundreds of years so well, all the su…

The reason is fairly obvious. In most of the places (SF, NY etc.) where housing is expensive, it is illegal (or very difficult to get approval) to build new housing.

Re: Home Price-to-Income Ratios

#123

Post by 6gvONxR4sf7o »

throwmeaway999 wrote: post #49

I used to make about $600K/yr salary in SF and couldn't imagine affording a home there that I'd feel comfortable with a 30-year mortgage payment on.

It's ridiculous to say you can't imagine affording a home on a salary where you could live off 150% of the median household income while still saving enough to buy a 150% of a median home for straight cash in under a decade. Color me incredulous.

[Assuming you live like you make $150k/year (a bit over 150% AMI), you'll have about a quarter million per year left over after taxes. You could save $2.1M (a bit over 150% of median home) in cash in just below 9 years.]

Re: Home Price-to-Income Ratios

#124

Post by sgc »

dv_dt wrote: post #89
sharkmerry wrote: post #83

Earlier quoted context omitted.

It drives home prices up by reducing velocity of home sales because people can afford to stay longer without higher taxes. The issue that seems to have developed is that towns are building commercial property, as it brings in sales taxes or payroll taxes which total a lot more than property taxes

> It drives home prices up by reducing velocity of home sales because people can afford to stay longer without higher taxes. Why? It doesn't change the total inventory, nor the ratios of how many want a home vs have a home. > The issue that seems to have developed is that towns are building commercial property, as it brings in sales taxes or payroll taxes which total a lot more than property taxes Commercial property…

It does change the ratios of who wants a home since it makes a better investment. IMO prop 13 should only apply to primary residence.

Re: Home Price-to-Income Ratios

#125

Post by 6gvONxR4sf7o »

sadasy3748 wrote: post #79
throwmeaway999 wrote: post #49

I used to make about $600K/yr salary in SF and couldn't imagine affording a home there that I'd feel comfortable with a 30-year mortgage payment on.

I currently make 600K / year in SFBA and don't feel comfortable buying a home (2000+ sqft in a good neighborhood is 2.5M) We rent for $7K / month but our mortgage would be 14K a month if we bought. I am not sure how much money I would need to make to do this. My worry is that I lived through 2 recessions and we'd almost certainly lose everything if I lost my job and couldn't afford the mortgage.

At that salary, you should be able to save pretty quickly to put more than 20% down. Live like you're only making $150k/yr and you can buy a $2.5M in cash in a decade if you prefer a $0/month mortgage.

Re: Home Price-to-Income Ratios

#126

Post by arebop »

leetcrew wrote: post #117
arebop wrote: post #78

Earlier quoted context omitted.

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 h…

In my locality, I believe the difference is explained in part by local policies that severely restrict new building and renovation of old buildings.

You might not expect such housing supply restrictions to cause land prices and rent prices to rise at different rates. But you would expect them both to rise. There may be real estate speculators investing on a momentum theory, but renters aren't willing to pay a premium based on the past trend in rental prices. This theory wouldn't support unbounded divergence between land and rent prices, but it would support some divergence consistent with what I've seen over the past few years.

Re: Home Price-to-Income Ratios

#127

Post by 6gvONxR4sf7o »

Whenever these graphs come up, I want to see the median ratio between sales price and income, not the ratio between median sales price and median income. I expect they'd be very different. But that data isn't so readily available, so report what you've got I guess.

Re: Home Price-to-Income Ratios

#128

Post by jedberg »

jjtheblunt wrote: post #66
thatfrenchguy wrote: post #28

Earlier quoted context omitted.

> 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?

> California + Federal taxes are something like 46%

49.3% is the top rate you'd pay in California at the highest bracket (or 50.3% if you make over a million) .

If your income is over 2 million a year you'd pay an effective rate of 44%.

If your income is $200K, your effective rate is about 34%.

Re: Home Price-to-Income Ratios

#129

Post by rorykoehler »

leetcrew wrote: post #121
rorykoehler wrote: post #46

Earlier quoted context omitted.

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

why? there's nothing inherent about owning a house that protects you from having all your surplus income siphoned away. if most of your wealth is tied up in the house, you are still vulnerable to property tax increases from appreciation on the home. not every state shields you from this to the extent that california does, and even california could change the law at some point in the next several decades. I'd much rat…

You'd rather have both though right? Obviously it depends on the market and california is a pretty bad example as an outlier where renting may make more sense but in most places in the world atm buying is the cheaper and safer (as in less chance of eviction at short notice) option. On the flip side renters only pay for increase in property values and never gain. Real Estate is a major wealth generator for people who get on the ladder. Finally you can't live in your 300k diversified portfolio if the market crashes.

Re: Home Price-to-Income Ratios

#130

Post by leetcrew »

sgc wrote: post #116
gowld wrote: post #85

Earlier quoted context omitted.

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 o…

> 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).

as a renter, that doesn't sound like a good solution to me. my landlord would just pass through the "investment property" tax to me, while homeowners in my income bracket would be getting a fat tax break.

people should be assessed a property tax that roughly approximates the local services they consume. after that, we can think about credits for people who are genuinely struggling to make ends meet.

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