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Home Price to Income Ratio

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Re: Home Price to Income Ratio

#171

Post by lbotos »

zzleeper wrote: post #64
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 mon…

House price is inversely correlated to interest rates BECAUSE most buyers are getting a mortgage. So the price of the house "will drop" (hard and fast estimate here not a law) if interest rates rise because people are paying for house+interest = total_cost_able_to_pay.

I watched this play out in real time as I purchased my home. Rates dropped, prices went up to fill the gap. Owner got a bit more money vs the bank instead.

Basically I gave my money to a different person, but the "all in" was about the same.

Re: Home Price to Income Ratio

#172

Post by the_gastropod »

willcipriano wrote: post #160
the_gastropod wrote: post #143

Earlier quoted context omitted.

Right, vs REAL inflation, which is measured by whatever I think happens to be too expensive right now.

I mostly just look at the money supply. Print 10% more money, that's 10% inflation. It may not be uniform throughout the economy, or take effect immediately but that's 10% more money chasing the same assets. It's all has to go somewhere.

This is just incorrect. Value is added to the economy every day. Take the home you're living in. That probably did not exist 100 years ago (and if it did, it certainly wasn't as nice as it is today). That's new value, and having money in circulation to correspond to that value makes perfect sense.

Re: Home Price to Income Ratio

#173

Post by nostromo »

jonas21 wrote: post #167

One thing not captured in this chart is that the average house size in the U.S. has nearly tripled since the 1950's.

Not only are the houses much bigger but families are also much smaller.

It also ignores interest rates. Unless you're paying cash, the price of a home doesn't really matter -- what matters is your monthly payment. If you bought a house in the 80s, a huge chunk of change every month went to bankers, not to principle. So the fact that you got a "cheap" house doesn't really matter, because you were still paying an arm-and-a-leg for it.

Re: Home Price to Income Ratio

#174

Post by marvin »

maxsilver wrote: post #136
tharne wrote: post #108

Earlier quoted context omitted.

It consistently shocks me how rarely this is brought up as a solution. Price of something too high? Increase the supply.

Because it doesn't actually work. It helps a tiny little bit, in the places that are actually somewhat constrained (like SF/BayArea specifically). But it's not any kind of significant fix. Housing is an investment asset for stock market folks, it doesn't follow a Econ-101 understanding of "supply" and "demand" in any meaningful way. The Midwest and the South are both way ahead of California on the whole "just build m…

Are you saying that if the housing market has 10 million homes and 7 million people live there, prices will continue to appreciate to stratospheric levels because someone will magically appear to buy the excess 3 million properties and leave them without tenants? That's what it sounds like to me.

Re: Home Price to Income Ratio

#175

Post by nullc »

I wonder if how this can be corrected for the different timing of the numerator and denominator. I assume housing prices are closer to real time while median incomes are lagging by a year.

Re: Home Price to Income Ratio

#176

Post by ashtonkem »

bakuninsbart wrote: post #55
zbrozek wrote: post #23

Earlier quoted context omitted.

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…

> Are property rights freedom-preserving?

You’ll find that historically speaking “freedom” and “property rights” are treated as synonymous for some political theorists, including the ones that founded the United States. This is one of the foundational aspects[0] of liberalism that has come to rule the western world; the idea that property rights are sacred and must have an exceptionally high bar for the collective to intercede on.

Whether or not that equivalence is true is a debatable matter. One of the unfortunate outcomes is the ability for the individual to withdraw their property from public use, often to the detriment of the whole (such as the beach example you provided).

Also, the fact that the founding thinkers of liberalism and America itself tended to own slaves or trade in them doesn’t necessarily disprove the basic argument, but it’s a pretty strong counter point at least.

0 - There are of course other tenants to liberalism that I’ve not included here, due to their irrelevance for the subject at hand.

Re: Home Price to Income Ratio

#177

Post by rossdavidh »

SubiculumCode wrote: post #61
SubiculumCode wrote: post #59

Earlier quoted context omitted.

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

Interesting, but that chart appears to end in 2016?

Re: Home Price to Income Ratio

#178

Post by ralph84 »

nradov wrote: post #60
standardUser wrote: post #21

Earlier quoted context omitted.

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.

Inflation may not be out of control yet, but certainly things like insurance, parts and labor for repairs and maintenance, and HOA dues are already increasing more than 5%/year. And property taxes alone are guaranteed to increase 2%/year in California. Not saying we should feel sorry for landlords, but when some parts of a market have price controls and other parts don't, distortions are inevitable.

Re: Home Price to Income Ratio

#179

Post by m_ke »

TameAntelope wrote: post #158
m_ke wrote: post #48

Earlier quoted context omitted.

We're in an everything bubble that's about to pop. Evergrande is about to take it all down.

How long will you and your Reddit pals keep saying this before you realize how untrue it is? Last prediction I heard was that everything was going to crash today. Now it's next week. Next week will it be November? 2022? 2024? 2030? Over and over again, I see newly minted retail investors discover the only hard part about investing; actually knowing when things will happen. If you can't say when the MOASS (or whatever…

I don't hold a single share of public stock nor crypto and have never posted on any investing forums.

Evergrande could end up tanking the Chinese real estate market and a take bunch of banks down in the process unless the CCP steps in and nationalizes it.

Re: Home Price to Income Ratio

#180

Post by robocat »

greesil wrote: post #128
dpweb wrote: post #118

Earlier quoted context omitted.

When it's all assets going up, it's not the assets cost more, it's the dollar is worth less. So for all the help and assistance. Housing is LESS affordable than ever before. You cannot infuse trillions of extra dollars into the economy without inflation. There's no magic pill - there must be consequences.

You can if you're in a liquidity trap. Question is, are we in one now?

I imagine creating cash to solve a liquidity trap is like continuously taking laxitives for a constipation problem... At some point you get a different problem!

On topic: my experience of housing prices in NZ is that people bid up house prices to the point that they can only just afford the mortgage payments.

Creating more housing doesn't "fix" the problem, because the more wealthy buy two or more houses, and are happy to leave one empty. I've left a house vacant in a tight rental market because the hassle of a tenant was not worth the risks for me (possible gain was a very small percentage of my income).

I am in New Zealand, and New Zealanders bid against each other in an almost zero-sum game for the properties that exist... We are borrowing from overseas to pay for it, so most New Zealanders gain nothing and global finance is the real financial winner.

Yet, politically the game is difficult to change... We have a left leaning party strongly in power, and they are struggling to create a more level playing field so that people can afford to get a home (rather than pay rent, which is more expensive than a mortgage).

Edit: also we can only lock in fixed interest rates for up to 5 years and most people only lock in for 1 or 2 years because short term rates are cheap - the 30 year mortgage system is completely foreign to us.

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