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Home Price to Income Ratio

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Re: Home Price to Income Ratio

#41

Post by tempfs »

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.

1. Residential homes are no longer allowed to be 'investment properties' aka every person(or married couple) can own exactly one house. Corporate entities except for Banks(even then can only own it for the time it takes to sell it in the case of foreclosure) can't either.

2. Only actual Americans can own property in America. Single-fam, multi-fam, land,etc. doesn't matter.

Exactly no one needs to rent houses if mulit-fam exists and actual houses aren't speculative instruments or places where foreign nationals hide their money.

Re: Home Price to Income Ratio

#42

Post by Fire-Dragon-DoL »

clipradiowallet wrote: post #14
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.

The 3x income rule is usually mentioned by your loan officer, and your real estate agent. They will present you with houses costing 3x your income as a baseline of what you can afford.

That's funny, you need to earn 250000/year to be able to afford _something_ in Vancouver by following that rule.

Re: Home Price to Income Ratio

#43

Post by kevinventullo »

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 don’t think I would characterize most millennials as “content” with their income level.

Re: Home Price to Income Ratio

#46

Post by FredPret »

antisthenes wrote: post #34
mrfusion wrote: post #19

Earlier quoted context omitted.

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/

> If we could make things cheaper by passing a law we’d do it for everything. Price controls for medicine are proven to work, based on single payer European systems. They cost cheaper and provide better outcomes than the US system. Yet here we are.

That’s different. The drugs are invented and produced all over the world and can be imported to Europe. So low European drug prices will harm overall pharma innovation a bit without killing the entire market.

Housing, OTOH, is always local. Low rents will discourage development which will make the real, underlying problem worse.

Re: Home Price to Income Ratio

#47

Post by gruez »

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

Exactly. https://awealthofcommonsense.com/wp-content/uploads/2021/03/...

That said, it doesn't do much for down payment.

Re: Home Price to Income Ratio

#49

Post by gruez »

xnx wrote: post #33

I appreciate this effort since this gets closer than reporting on house prices alone. As other's have pointed out there are a lot of significant factors being left out (e.g. interest rates). One of my favorite analysis is the historical chart on how many hours you had to work for an hour of artificial (candle, lamp, electric, etc.) light. I'd love to see this applied to housing, though housing is extra difficult beca…

>As other's have pointed out there are a lot of significant factors being left out (e.g. interest rates).

>though housing is extra difficult because the quality has also changed immensely (indoor plumbing, electricity, etc.).

This blog goes over both those points. https://awealthofcommonsense.com/2021/03/what-if-housing-pri...

tl;dr:

1. inflation adjusted mortgage payments are actually down

2. houses have gotten much better since a few decades ago.

Re: Home Price to Income Ratio

#50

Post by rootusrootus »

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.

IMO the ratio depends entirely on your age. It makes a lot of sense for someone in their 20s to go for a 4x ratio (with caveats, such as fixed mortgage rates). It makes no sense at all for someone in their 60s.
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