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Home Price to Income Ratio

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Re: Home Price to Income Ratio

#61

Post by SubiculumCode »

SubiculumCode wrote: post #59
gruez wrote: post #47

Earlier quoted context omitted.

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.

https://www.corelogic.com/wp-content/uploads/sites/4/2021/06...

Here is the same chart but for California regions

Re: Home Price to Income Ratio

#62

Post by 6gvONxR4sf7o »

I’d love to see the same charts in terms of monthly payments on a new mortgage, rather than sticker price. The price itself matters in terms of downpayment, but ultra low interest rates are a huge factor. Right now, interest rates are so low that a huge mortgage has the same payments as a small one years ago would have been. Especially when you take inflation into account.

Re: Home Price to Income Ratio

#63

Post by nradov »

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 is an example of what economists call the free rider problem. European countries get cheap drugs only because they are effectively being subsidized by Americans.

https://www.investopedia.com/terms/f/free_rider_problem.asp

Outcome differences are due more to public health and social factors like obesity. Expensive drugs or lack thereof have only a tiny impact at the population level.

Re: Home Price to Income Ratio

#64

Post by zzleeper »

MrFlibbles wrote: post #53

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 t…

I just got a 15yr fixed rate at 2% (!) which made me think a lot about what's behind your comment. In particular, what will happen once rates go back up:

1) Right now we are at zero short term rates, and moreover mortgage rates are propped due to Fed purchases of Agency MBS

2) Say rates go up 2% (not crazy) in parallel. So now your 3.5% becomes 5.5% which is still historically moderate. However, the 5441 required monthly income from your formula is now 6877! 26% increase.

3) What then? Prices go down?

Re: Home Price to Income Ratio

#65

Post by mediaman »

SubiculumCode wrote: post #59
gruez wrote: post #47

Earlier quoted context omitted.

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.

Your other post is dead for some reason so I am reposting the chart you posted, showing mortgage cost per month for areas of California:

https://www.corelogic.com/wp-content/uploads/sites/4/2021/06...

Re: Home Price to Income Ratio

#66

Post by zzleeper »

throwaway6734 wrote: post #24
zzleeper wrote: post #22

Earlier quoted context omitted.

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

Of course. But buyers still need to be able to afford houses they purchase. With higher rates that might not be true.

Re: Home Price to Income Ratio

#67

Post by jakemoshenko »

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…

Where do you expect rental housing stock to come from in this scenario?

Re: Home Price to Income Ratio

#68

Post by spoonjim »

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…

How does public housing abridge property rights?

Re: Home Price to Income Ratio

#69

Post by patrickthebold »

6gvONxR4sf7o wrote: post #62

I’d love to see the same charts in terms of monthly payments on a new mortgage, rather than sticker price. The price itself matters in terms of downpayment, but ultra low interest rates are a huge factor. Right now, interest rates are so low that a huge mortgage has the same payments as a small one years ago would have been. Especially when you take inflation into account.

One thing I think people overlook is that there's a hidden cost to buying at low interest rates: if rates go up that will eat into your resale value, and it's less likely you can refinance at a lower rate in the future.

If you bought at a high interest rate and then rates drop you really make out, and that's less likely to happen to people buying now.

Re: Home Price to Income Ratio

#70

Post by simonsarris »

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…

Doesn't that sound insane from a mile away? By the time you are done making exceptions, you'll have infinity carve outs. This is not a solution so much as a way to squish the problem into a different, weirder shape.

1. Everyone is forced to sell their lakehouses, cabins, ADUs? Detached mother-in-laws? (wtf is "Exactly one house?")

No one is ever able to rent a single family home ever again? Right now 14.5 million households / 44 million residents rent single-family homes in the United States. They're... out of luck? On the street? Gotta save for a down payment? If those houses are force-sold, don't you think people-other-than-the-current-inhabitants will come in and buy them?

Actually, can anyone ever rent ever again? Or is it a buy-vs-homeless dichotomy here? Or do towns have to become miniature companies and play landlord? Or states?

2. Timber companies are forced to give up their land, bankrupting all of them and driving the cost of wood sky high. Mobile home land must now be sold, except no one can buy it. Farms except for sole proprietors are forced to give up their land (sorry partnerships, amish, people with discontiguous lots, and everyone who wants to eat this year, you're out of luck)

IMO you should focus on laws that let people build more (eg, ADUs, duplexing) rather than getting out the stick and hoping there won't be huge side effects.

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