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Home Price to Income Ratio

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Re: Home Price to Income Ratio

#251

Post by jeffbee »

ChuckNorris89 wrote: post #243
jeffbee wrote: post #236

Earlier quoted context omitted.

I know in Berlin they consider themselves to be having a housing crisis but last I checked apartments in desirable districts of Berlin were like a quarter of Bay Area housing prices, for example < €1000/mo for a 2 bedroom / 50 m^2 apartment.

When was that? Prices are higher now for something decent. Also I was taking about buying property not renting. >districts of Berlin were like a quarter of Bay Area housing So what? Nothing touches Bay Area prices, even in the US. And then there's the income difference as well. Try comparing to something more similar like Texas. Last I checked average dev wages in Austin are easily 2x more than average dev wages in B…

Before COVID-19, when I was still allowed to travel :-/

Re: Home Price to Income Ratio

#252

Post by shados »

itake wrote: post #112
alexpotato wrote: post #104

Earlier quoted context omitted.

I've often wondered about this myself. E.g. it's a lot easier to have two working people in a couple make $300K total vs only one person making $300K. It would be interesting to go back in time and correlate the rise of dual working couples vs housing prices adjusted for other factors e.g. inflation

At least in tech hubs, the "one person making $300k" is marrying up with another person that makes $300k, resulting in a $600k household and $1-3M home prices.

Yup. Don't forget the whole "frequently choose not to have a kid" part, and it becomes extremely one sided. Dual income families aren't new, but 2 high earners professionals with no kids aren't just the occasional doctor/dentist/lawyer couples anymore.

I'm a software engineer myself in one of the high paying tech hubs, and married the same. When we went to look for a home and toured open houses, all you saw were pairs of young couples wearing Google, Microsoft and Facebook swags. Sure, I didn't personally ask every single one of them where they worked, but I'd venture that a non-zero amount of these couples were "Tech DINKs", like us.

The average person simply can't compete with that. Add that in the urban areas these folks are less likely to want a big car, some may be happier playing Final Fantasy 14 during vacations than traveling across the world (I know plenty of travelers, but there's certainly a lot of "low cost" vacationers in the industry), and some level of financial literacy (common for people who get compensated with RSUs), and it's absolutely one sided.

With that said, median home prices have only increased a little faster than inflation. When you account for interest rates tanking + inflation, a median home in 2021 is the same price and sometimes cheaper than it was in 2005 (data for the last few months is harder to find, and there's been a unusual spike, so it may not be quite true right now, but it was just a few months ago).

The bigger problem is that everyone wants to live in the same place (usually in urban centers, where the jobs are, and where you don't have to drive an hour and a half to work). So prices where people want to be have increased higher than median.

I'd expect people are more ok with paying a larger portion of their income to live where they want to be. Even as extremely high earner DINKs, housing will eat up a good chunk of our cash flow if we feel like blowing it all to live in Manhattan in a condo that doesn't suck.

Re: Home Price to Income Ratio

#253

Post by mywittyname »

itake wrote: post #100
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…

I suspect that dual income families could be a contributing factor in increased home prices of single-family homes. Even 'worse' is dual income, no kid families that are delaying and skipping child costs. Thus with "double" the cash flow and shared costs, couples afford higher prices at a lower cost.

The amount a household can spend on housing scales at a faster rate than income. Say, a family is making $2000 a month with one person working, and spending $800 on housing. If another person goes to work making $2000 -- spending, maybe $300 in work-related expenses, gas and such -- that household now has $800 + $1700 = $2500/mo available to spend on housing, while maintaining an otherwise similar standard of living.

So doubling of income tripled the amount that could be spent on housing.

But wait, there's more. People buy housing with debt, and a doubling of the monthly payment on a mortgage more than doubles the price that can be afforded. So that household paying $800/mo could move from their $195k house into a $600k house with a $2500/mo payment.

So, a doubling of income has the potential to increase the amount of house a household could afford by six. Granted, this ignores things like taxes, and most people don't spend their entire raise on housing. But this fact is probably what helped drive prices in places like California into the stratosphere.

The crux of the problem is probably that income follows a roughly pareto distribution. When housing is limited, the poorest households drop out of the market. And when populations grow but a town doesn't, housing gets bought by people higher up in the income distribution curve. And past median, incomes climb quickly.

If you have 30k houses, in a town with 60k people, then housing will be affordable to a median income. But if the population grows to 120k, but housing doesn't, then only the top 75% of households can afford a house. Median income, to top 75% is a huge jump.

Re: Home Price to Income Ratio

#254

Post by ChuckNorris89 »

jeffbee wrote: post #251
ChuckNorris89 wrote: post #243

Earlier quoted context omitted.

When was that? Prices are higher now for something decent. Also I was taking about buying property not renting. >districts of Berlin were like a quarter of Bay Area housing So what? Nothing touches Bay Area prices, even in the US. And then there's the income difference as well. Try comparing to something more similar like Texas. Last I checked average dev wages in Austin are easily 2x more than average dev wages in B…

Before COVID-19, when I was still allowed to travel :-/

Prices are higher now. And please don't compare Berlin to SF it's apples and oranges.

Re: Home Price to Income Ratio

#255

Post by nwiswell »

AndrewDucker wrote: post #216
zargon wrote: post #207

Earlier quoted context omitted.

Does this mean that when interest rates go up, home values may drop, leaving people underwater?

Absolutely. Although it's more likely that they'll just remain stagnant, which would be just fine.

People being underwater happens to mean that the banks have bad loans. We have seen that movie before.

Interest rates will not be allowed to increase faster than the property market can absorb. You can count on that; the political imperative could not be more clear. The next crisis will probably be some novel flavor of financial recklessness.

Re: Home Price to Income Ratio

#256

Post by tshaddox »

shados wrote: post #226
drunkpotato wrote: post #200

Earlier quoted context omitted.

That income tax statistic is misleading. Most Americans do pay social security payroll taxes, which are income taxes, they’re just not called “income tax.”

Social security is more of a forced 401k. You will get back the money (in theory), but yes, it's not progressive and impact the poor more than the rich. It's a bit of an iffy one. If the social security system rolled up into federal income tax, it would be much more progressive, but it would likely receive significant pushback in the political space (not knowing its history, I assume it was structured as a separate t…

> Social security is more of a forced 401k. You will get back the money (in theory)

Don't you get the value of the money back for all taxation, according to any theory that approves of taxation?

Re: Home Price to Income Ratio

#257

Post by rayiner »

jandrese wrote: post #124

How much of this is a result of our "don't tax the rich" policies that created a staggering amount of wealth at the top that has nowhere else to go? So many ultra rich investors are looking for something, anything, to invest in. Plus there is the feedback loop of massive growth you get as the bubble inflates. Is this a direct result of our fiscal policy? Have we destabilize the economy in order to create the richest…

Segueing from “rich” to “multi-billionaires” is a neat trick by rich professionals to divert attention from themselves.

Five years ago, we moved into a 3,000 square foot house in the Annapolis suburbs. We are right on the water so it cost a princely $485,000. But it was easy to get a house in the neighborhood for $300,000 or so, or just 4 times the county’s median income. As a result, the neighborhood has lots of young families (many without college degrees!), retirees, etc. Today, the house next door is under contract for double the price, and is smaller than ours. As far as I can tell, there’s no billionaires or even centi-millionaires anywhere near us. Just upper middle class people whose 401ks have done really well thanks to the Fed printing money like crazy, not to mention upper middle class welfare like more than a year of deferred student loan payments. (Lower income folks with student loans were already eligible for income based repayment.)

Reaganism has won so completely in America that even AOC doesn’t want to tax upper middle class people. But these are the people directly competing with the middle class for fixed resources. They’re the people driving residents out of gentrifying neighborhoods, driving up the price of coffee, etc. There’s not enough 0.01%-ers out there to move the needle on these assets and services.

Re: Home Price to Income Ratio

#258

Post by HeyLaughingBoy »

bserge wrote: post #36
MathMonkeyMan wrote: post #26

Earlier quoted context omitted.

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"?

No, trust me, people are content with renting a room and living month to month. There's nothing to worry about.

I'm starting a business selling guillotine insurance...

Re: Home Price to Income Ratio

#259

Post by noduerme »

throw0101a wrote: post #231
willcipriano wrote: post #160

Earlier quoted context omitted.

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.

> Print 10% more money, that's 10% inflation. No: If you're approved for a $100K loan, you are credited with $100K balance to draw from your account, and the money supply is recorded as going up by $100K. But if you don't withdraw any money from the account (e.g., a HELOC that you intended only for emergencies), then how can it be inflationary if it's not circulating in the economy? But it is registered as increased…

Do a lot of people take out loans they never use? If you get a loan to buy a house, the seller gets the money immediately and uses it to buy another house. You've just put a whole house's worth of debt into circulation.

Re: Home Price to Income Ratio

#260

Post by shados »

brendoelfrendo wrote: post #238
itake wrote: post #100

Earlier quoted context omitted.

I suspect that dual income families could be a contributing factor in increased home prices of single-family homes. Even 'worse' is dual income, no kid families that are delaying and skipping child costs. Thus with "double" the cash flow and shared costs, couples afford higher prices at a lower cost.

This is something that Elizabeth Warren and her daughter Amelia covered in their book "The Two Income Trap." I'm aware that recommending a book by a political figure is fraught, but I'm not aware of any economists who took umbrage with the claim, either. They make the observation in chapter 1 that "Even as millions of mothers marched into the workforce, savings declined, and not, as we will show, because families wer…

I've thought about this a lot, though if you google around you'll find people who dispute this claim. Still, it makes sense to me.

If you have single income households, and all of a sudden everyone's a double income households, you're not any better off. You'll get inflation, especially in housing. People will point out that stay at home moms weren't THAT pervasive, even decades ago (not as pervasive as us younglins would think), and that may be correct, but double professionals as a common thing is still more recent. We're making some (slow) progress toward wage equity on top of all of it too. That's a good thing, but it doesn't change much when people are bidding against each other.

But all things are not equal: It's not as simple as "back then it was 1 income families against 1 income families and now its 2 vs 2".

Not at all! Now you have 1 income families, 2 income families, 2 income families with no kids, 2 income families where both are software engineers, etc. All of these always existed in some form, but now it's very visible.

If my partner and I (we're DINKs, both in software engineering and highly successful) go to bid on a home, and a single working parent with a partner who stay at home, and 3 kids, try to outbid us... Well, let's hope for them that the single earner is a world famous neurosurgeon, else they're not getting that home.

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