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Home Price to Income Ratio

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Re: Home Price to Income Ratio

#51

Post by JamesBarney »

tempfs wrote: post #41
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…

1. Just bans people from renting houses to other people. This reduces the supply of rentable houses to 0. Reduces the supply of rentable stock in general. And very slightly marginally reduces the price of houses.

2. Can corporations still own commercial property? And can foreigners own corporations ?

Re: Home Price to Income Ratio

#53

Post by MrFlibbles »

Affordability is limited by lending requirements.

Start with home price of $250k for example. If you can manage a 5% down payment (arguable) then the loan is for $237.5k.

With a 30 year loan at 3.5%, the principal and interest is $1,066.48 per month. Gross this up by 0.7 for taxes and insurance to get $1,523.54/month.

Lenders will typically allow your payment to be as much as 28.0% of your gross income. This get us to income of $5,441.23/month or $65,294.76/year.

The multiple now if $65.3k income to $250.0k of house or roughly 3.83X.

Re: Home Price to Income Ratio

#54

Post by steveBK123 »

Probably need a 3rd time series that takes interest rates into account to provide a monthly-cost view.

Given sufficient savings, the price range for home shoppers is controlled by the monthly outlay which is driven by interest rates.

Sub-3% interest rates in 2021 means that the same monthly cost drives the headline house price a lot higher than 6%+ pre-2008.

Re: Home Price to Income Ratio

#55

Post by bakuninsbart »

zbrozek wrote: post #23
ido wrote: post #10

Earlier quoted context omitted.

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 f…

Are property rights freedom-preserving? One of the most infuriating bits of my visit to the US West coast was driving up from LA to SF and a lot of the really nice bits of coast not being accessible to the public. There's compromises like germanic Jedermansrecht [0], but overall I think limiting property rights is often a net gain of freedom.

I do agree on the problem of NYMBYism though. There's a funny-if-not-so-sad dispute here in Berlin at the moment, where the leftist state government is desperately trying to build public housing while the leftist local government in the district of Lichtenberg is blocking a major developing due to local concern. Sadly I can't find an article in English, but I am sure there are dozens if not hundreds of examples for that.

[0]https://en.wikipedia.org/wiki/Freedom_to_roam

Re: Home Price to Income Ratio

#56

Post by xnx »

gruez wrote: post #49
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…

Great analysis! Thank for sharing that link.

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

I'm sometimes reminded of this when I see old footage of shows like "Lifestyles of the Rich and Famous". Many mansions from the 1980's kind of look like dumps.

Re: Home Price to Income Ratio

#57

Post by pfisherman »

gp wrote: post #32

While it doesn't directly affect the average person's purchasing power, the same dramatic increase is happening in other asset values as well. [0] One interesting thing to note is that 2019 EV / EBITDA values were already "high," before the coronavirus was spreading. I suspect these two phenomena have different causes overall, but low interest rates are a common factor that cause all asset prices to increase. On the…

This jibes with my experience of buying a house about 6 months ago.

My reasoning was that we were experiencing rapid asset inflation fueled by low interest rates and COVID stimulus, and our cash was losing its value relative to housing by the month. I figured that this propping up of asset prices is likely to continue, as any administration that lets housing / 401k values collapse will get massacred in elections.

Re: Home Price to Income Ratio

#58

Post by lastofthemojito »

tempfs wrote: post #41
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…

Even "simple" solutions like those you've proposed so often wind up having unintended consequences.

For your first proposal, I wonder about folks buying a house through an LLC or trust as folks often do to protect their privacy. Are we banning that? I also wonder about inheritance - if I own a house and my parents die, leaving me their house, how long do I have to sell one to be "in compliance?". Maybe their house needs work and I'd like to spend a few months or a year fixing it up to maximize what it'll sell for. Is that ok? And speaking of timing - I remember during the wave of foreclosures after the last housing bubble, banks kept a lot of houses off the market for a while to moderate prices, rather than listing everything at once and panicking the market further. Seems like banks ought to have some leeway to maximize their return (e.g. if a house has a pool and is foreclosed on in the late fall, maybe they judge that waiting until spring would get a better response from buyers).

Re: Home Price to Income Ratio

#59

Post by SubiculumCode »

gruez wrote: post #47
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.

This is very interesting but I wonder if the housing crisis is not reflected in that chart because it's an average of presumably average American mortgage rates. What about California mortgage rates? I'd love to see that last chart restricted to California where the prices have skyrocketed.

Re: Home Price to Income Ratio

#60

Post by nradov »

standardUser wrote: post #21
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/

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.

San Jose limits annual rent increases to 5%. That seems reasonable (unless inflation gets out of control). Tenants aren't immediately forced out of their homes if the market rate jumps 20% in one year. But landlords can still eventually raise rents to market rates spread out over several years. There's no absolute limit on maximum rent.
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