Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

House prices surpass housing-bubble peak on price-to-rent ratio

stlouisfed.org

Post reply on HN
Print view View original

111–120 of 139 posts

Re: House prices surpass housing-bubble peak on price-to-rent ratio

#111

Post by ChrisLomont »

JimTheMan wrote: post #52
ChrisLomont wrote: post #17

Earlier quoted context omitted.

>And because getting the % deposit is a big factor in whether you can afford a house, it pushes lower income people out of the market. Median downpayment is 6%, a common low end is 3%, some places and programs go lower. Median house price sold in 2020 was 347k, well over 25% of houses sell for under 250k [1]. So, for a starter home, saving 3% of say 200k is 6k. If someone can pay this mortgage without killing themsel…

Depends where you live I suppose. I am in Australia where typically you need 20%. At 10% you need to purchase special insurance or get a guarantor. I am surprised at how crazy low those US ratios are. Thats just bonkers.

Australia lets people get 5% down houses regularly.

And in the US, below 20% you get an extra insurance called PMI.

Sounds like the two countries work the same because money works the same.

Re: House prices surpass housing-bubble peak on price-to-rent ratio

#112

Post by [deleted] »

akudha wrote: post #51
mc32 wrote: post #36

Earlier quoted context omitted.

Some of it is to take money out of authoritarian regimes and move it into more rule of law countries. Another reason is a hedge against inflation which we may be beginning to see right now.

The very fact that you are trying to rationalize someone buying multiple homes at the expense of someone trying to buy their first home highlights the problem. Take Canada for example. A whole lot of homes are bought by Chinese buyers and are sitting idle, at the expense of Canadians trying to buy their first home. How can you say this is morally right? It is all find and dandy for the Chinese buyers, but what of Can…

[deleted]

Re: House prices surpass housing-bubble peak on price-to-rent ratio

#113

Post by to11mtm »

ghaff wrote: post #59
JimTheMan wrote: post #52

Earlier quoted context omitted.

Depends where you live I suppose. I am in Australia where typically you need 20%. At 10% you need to purchase special insurance or get a guarantor. I am surprised at how crazy low those US ratios are. Thats just bonkers.

Those down payments used to be the standard in the US. However, I am surprised that, indeed, median down payments do seem to be significantly below that these days.

There's a few contributing factors to down payments being lower. Like with FHA loans, you can have a very minimal down payment, however unlike a conventional loan, the 'MIP' (the insurance comparable to a Conventional's PMI) will never go away on a new FHA loan if your original down payment was less than 10%.

So, what a lot of people do is either just eat that extra cost (for lower cost homes, it more or less comes out to the equivalent of an additional 0.8-1%) for the life of the loan, or refinance out to a conventional loan once they're below 80% LTV.

There is also the shady case of the 80/20 Mortgage. Basically, you take out one 'primary' mortgage for 80% of the home's value, and then a second mortgage or HELOC on 20% of the rest.

This can in some cases be cheaper, but arguably goes against the whole spirit of PMI in the first place. (Not saying I don't have issues with the way PMI/MIP works...)

Re: House prices surpass housing-bubble peak on price-to-rent ratio

#114

Post by to11mtm »

ryathal wrote: post #102
qqqwerty wrote: post #66

Earlier quoted context omitted.

My main concern right now is that an increase in interest rates is going to cause a drop in home prices and possibly trigger another crash. For example, the relatively modest rate increases in 2018 caused a fairly noticeable swoon in the SF/Bay area housing market. For those that think buying a house is a good hedge against inflation, it is worth considering that the best tool to combat inflation is to raise interest…

Increased rates in the future will drop purchase prices, but it's likely that it either slows the rate of increase or doesn't drop them to below current prices. There aren't many markets even after 2008 that weren't at or above those levels 5 years later. You might get lucky in timing the housing market on a 1-2 year scale, but it won't matter at the 10+ year scale.

I hope you're right. As long as home values don't drop -too- much below existing prices, damage would be minimized.

Big second order effect of a potential housing crash: There's a non-negligible part of the population that uses their homes as their own lines of credit. As their home increases in value, they occasionally will do a 'cash-out' refiance of their property. Or will open up a HELOC. If the market tanks, people who rely on this tactic will find themselves in a crunch quickly.

Re: House prices surpass housing-bubble peak on price-to-rent ratio

#115

Post by nly »

thehappypm wrote: post #95
akudha wrote: post #35

I wish something is done about these rentiers. Someone I know is amassing a rental property portfolio, while I am struggling to buy my first home. I am not against people making money and getting rich, but it would be nice if it wasn’t so easy to buy up multiple properties simply because they have the cash. There should be all kinds of incentives for first time home buyers. But it should be made very expensive/very p…

There are tons of incentives for first time home buyers! They just aren't really marketed. You can take out a mortgage against your own 401(k) for your first home. You can use a VERY low down payment loan (like 0% in some cases) for your first home. Tax rates are lower in many places for homeowners than renters -- in Boston and Somerville MA, this comes out to a pretty substantial tax credit.

All of those incentives just increase demand for housing and bid up prices. Supply needs fixing.

Re: House prices surpass housing-bubble peak on price-to-rent ratio

#116

Post by nly »

JimTheMan wrote: post #52
ChrisLomont wrote: post #17

Earlier quoted context omitted.

>And because getting the % deposit is a big factor in whether you can afford a house, it pushes lower income people out of the market. Median downpayment is 6%, a common low end is 3%, some places and programs go lower. Median house price sold in 2020 was 347k, well over 25% of houses sell for under 250k [1]. So, for a starter home, saving 3% of say 200k is 6k. If someone can pay this mortgage without killing themsel…

Depends where you live I suppose. I am in Australia where typically you need 20%. At 10% you need to purchase special insurance or get a guarantor. I am surprised at how crazy low those US ratios are. Thats just bonkers.

Yeah it seems like in America you can still put almost nothing,.or like 5% down and get a crazy low interest rate mortgage for 25 years.

Here in the UK you can't even get fixed rate mortgages of more than 10 years and all of those require substantial deposits.

>20% down is where the best interest rates are.

Most people are on variable rate deals or short term (2 year) fixed deals.

Re: House prices surpass housing-bubble peak on price-to-rent ratio

#117

Post by aurizon »

spaced-out wrote: post #103
aurizon wrote: post #20

Of course, this is a massive arranged crime akin to and having it's roots in the sub-prime mortgage crash. Rates are low. corporations can borrow unlimited cash and buy a residence, then rent it out to get 4-5% interest and pay 1.5 to 2.5 = risk free make the spread with no limits. I would like to borrow 10 billion and buy a zillion homes and make the spread ~~3%. They hire property managers and that costs .5% to .75…

Another idea, make it so that the more single family homes someone or a corporation owns, they pay a higher tax rate on all their properties. So someone who only owns two or three SF homes they maybe pay 1.5%, but if they own 20 they pay 5%. Similar rules could apply for apartments or condos but with different multipliers. If set properly it'll be impossible for large landlords to pass those taxes on to tenants, beca…

A valid ides if enforceable. I can see assorted numbered companies and nominees used to skirt this?

Re: House prices surpass housing-bubble peak on price-to-rent ratio

#118

Post by nly »

akudha wrote: post #35

I wish something is done about these rentiers. Someone I know is amassing a rental property portfolio, while I am struggling to buy my first home. I am not against people making money and getting rich, but it would be nice if it wasn’t so easy to buy up multiple properties simply because they have the cash. There should be all kinds of incentives for first time home buyers. But it should be made very expensive/very p…

The flip side of high property prices is that its currently a pretty shit investment for new wannabe landlords.

Rental yields on residential property are around 3% in most of the UK, which is roughly where interest rates are. This means landlords are now entirely dependent on leveraged price appreciation to make a decent return.

Many landlords have already sold up because the returns no longer justify the hassle or risk (bad tenants, rent arrears, etc).

Of course, one advantage to having your wealth in rental properties is rents are usually linked contractually to some measure of inflation.

Re: House prices surpass housing-bubble peak on price-to-rent ratio

#119

Post by nly »

ChrisLomont wrote: post #17
JimTheMan wrote: post #12

Earlier quoted context omitted.

The repayments seem to stay about the same but the overall payment is incredibly large. And because getting the % deposit is a big factor in whether you can afford a house, it pushes lower income people out of the market. And if you bought in 1980, the high rates kept the lid on prices. However while you may have started with the same payment but the rates have been steadily ticking down since then. Creating a massiv…

>And because getting the % deposit is a big factor in whether you can afford a house, it pushes lower income people out of the market. Median downpayment is 6%, a common low end is 3%, some places and programs go lower. Median house price sold in 2020 was 347k, well over 25% of houses sell for under 250k [1]. So, for a starter home, saving 3% of say 200k is 6k. If someone can pay this mortgage without killing themsel…

Maybe things are better in the US but here in the UK it stinks. Deposits of 5% are irrelevant because you still have to mortgage the rest.

Median house prices in the UK are something like 8x median incomes, and banks will only lend a maximum 4-5x earnings. This means average Joe need to save something much closer to 3/8ths, not 5%

As a real world example based on my current circumstances:

- At rough ballpark property prices, with ~15% down, market mortgage rates are about 3.5%.

- At 3.5%, with most I am comfortable paying every month (about 40% more than my current rent), I can only borrow around ~60% of what I need to buy the kind of home that I want (and rent now). On paper this means I have to save 40%.

- However, reality is somewhere in the middle. If I have 25% to put down, mortgage rates drop dramatically to 1.5%, allowing me to afford the same home.

So the long and short of it is you realistically need 20-25% here in the UK.

Re: House prices surpass housing-bubble peak on price-to-rent ratio

#120

Post by chid »

eutropia wrote: post #87

Just your annual reminder that the Land Value Tax is the Least Evil Tax. Tax "rent"[0] at 85-100%, allow owner-residents to defer LVT taxes owed to time of sale with modest interest. Speculators would be naturally driven out in favor of people actually using the land. [0] - Which is gatekeeping/charging for land (finite natural unimproved resources like space, spectrum, water, wildlife, oil, etc)

I don't see how you could justify it's the 'least evil tax'. In theory the least evil tax is something that doesn't change behaviour.

We have a land value tax here in Australia which doesn't apply to owner-residents. That said, most places are excluded.

Post reply on HN