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Home Price to Income Ratio

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Re: Home Price to Income Ratio

#21

Post by standardUser »

mrfusion wrote: post #19
ido wrote: post #10

Earlier quoted context omitted.

Why do you consider the 2 examples you gave “draconian”?

Rent control really doesn’t make sense. If we could make things cheaper by passing a law we’d do it for everything. Rent control won’t work for the same reason a price control for food or cars won’t work. https://freakonomics.com/podcast/rent-control/

Some forms of rent stabilization make perfect sense. But most of the policies implemented in big cities are far too restrictive. There is a lot of policy to be explored between "your rent never goes up forever" and "you can't be immediately evicted for no reason". No one wants the latter, but there are better ways to address that, like much longer notices for rent increases, or requiring multi-year lease options.

Re: Home Price to Income Ratio

#22

Post by zzleeper »

lastofthemojito wrote: post #9

I've heard 3x income as a rule of thumb for how much house one can afford, but it looks like that's never been widely followed. It also doesn't make a whole heck of a lot of sense as interest rates have varied so widely - a better rule of thumb might be a ratio between the total amount of payments over the life of a mortgage and one's income.

Agree. From experience, people look into how much they would pay monthly and their income.

This then begs the question: what will happen once rates go up even a bit, and houses suddenly require a 50% larger monthly payment.

Re: Home Price to Income Ratio

#23

Post by zbrozek »

ido wrote: post #10
standardUser wrote: post #5

Some very clever and influential people better start finding and implementing real solutions to housing prices right now. If they don't, expect overwhelming support from Millennials for massive expansions to public housing and rent control, if not even more draconian measures.

Why do you consider the 2 examples you gave “draconian”?

Not the OP, but I'll guess that it's because both of them strongly erode property rights. Another, more freedom-preserving, approach is to make it easier to build build build. Planet Money had a decent introduction a couple years ago.[0]

In the current NIMBY climate, my neighbor is struggling with the red tape to repave her driveway. Building a new home around here seems about as improbable as a hobbyist making the first human Mars landing.

[0] https://www.npr.org/sections/money/2019/03/05/700432258/the-...

Re: Home Price to Income Ratio

#24

Post by throwaway6734 »

zzleeper wrote: post #22
lastofthemojito wrote: post #9

I've heard 3x income as a rule of thumb for how much house one can afford, but it looks like that's never been widely followed. It also doesn't make a whole heck of a lot of sense as interest rates have varied so widely - a better rule of thumb might be a ratio between the total amount of payments over the life of a mortgage and one's income.

Agree. From experience, people look into how much they would pay monthly and their income. This then begs the question: what will happen once rates go up even a bit, and houses suddenly require a 50% larger monthly payment.

Most mortgages haves fixed rates

Re: Home Price to Income Ratio

#26

Post by MathMonkeyMan »

bserge wrote: post #17
peterlk wrote: post #3

I think there's a pretty critical piece of analysis missing here: inflation. An alternative explanation might be that housing prices are being driven up by inflation, and wages haven't caught up yet. There are two ways to lower the home value/income ratio: 1. Decrease housing prices 2. Increase wages We haven't seen meaningful wage increases for a long time now, so perhaps it is time. Maybe this is just a symptom of…

Why pay them more when they're content with what they get now?

I upvoted your comment because it clicked with me, but now I'm thinking about it more.

_I'm_ content with my pay now, perhaps others aren't and there is little they can do about it. How might we even define "content" for a cohort as large as "anyone buying a house"?

Re: Home Price to Income Ratio

#27

Post by dpierce9 »

Pay is not gaussian so comparing median salary to average home price is confused (average salary is 45% more than median salary in the US with wide regional variation). Case Schiller also only looks at single family housing stock so it won’t capture anything higher density (apartment like condos, duplexes, etc).

Re: Home Price to Income Ratio

#28

Post by m_ke »

standardUser wrote: post #5

Some very clever and influential people better start finding and implementing real solutions to housing prices right now. If they don't, expect overwhelming support from Millennials for massive expansions to public housing and rent control, if not even more draconian measures.

Simple solution would be to put a property and sales tax ramp on additional homes. Make landlords who own N homes pay 1.5^N the normal rate.

Re: Home Price to Income Ratio

#29

Post by thehappypm »

mint2 wrote: post #12

I’d be interested in seeing the total cost after accounting for interest in the loans, or monthly cost compared to monthly income. Most people don’t pay cash, and they pay more than the asking price due to interest. So high interest rate periods look artificially lower because they ignore a substantial amount of the price

Very true. The 2008 housing bubble did not have low interest rates. 30 year average was around 6%. Now it's under 3%. That 3% makes a HUGE difference in purchasing power.

Re: Home Price to Income Ratio

#30

Post by JTbane »

ido wrote: post #10
standardUser wrote: post #5

Some very clever and influential people better start finding and implementing real solutions to housing prices right now. If they don't, expect overwhelming support from Millennials for massive expansions to public housing and rent control, if not even more draconian measures.

Why do you consider the 2 examples you gave “draconian”?

Econ 101 says that rent control (in effect a price ceiling) just results in scarcity (people are unable to get ANY housing), rather than actually reducing the cost of housing.
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