Zillow and Open Door are manipulating the home prices in US.
https://news.ycombinator.com/item?id=27765536
Cheap Loans, surplus cash, and inventory hoarding.
Home Price to Income Ratio
331–340 of 704 posts
Re: Home Price to Income Ratio
#332I'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.
That rule does not work in Australia, Canada or the UK :D
Median salary is about 80k AUD in Western Australia. Median house price is 840k.
Even with 2 full time salaries of 80k your maximum would be 480k.
Re: Home Price to Income Ratio
#333A more relevant metric to consider - monthly mortgage payment to monthly income ratio. Average interest rates in 2007 were 6.34% vs ~2.80% today. [1] * 6.34% / $2,000 monthly payment / 20% down (~$65k) >> $328,319 price of home * 2.80% / $2,000 monthly payment / 20% down (~$98k) >> $489,794 price of home Homebuyers will make purchasing decision based on their monthly mortgage payments, instead of the home price. When…
> Homebuyers will make purchasing decision based on their monthly mortgage payments, instead of the home price. Which is crazy, right? People max out their "borrowing power" at low interest rates and take on huge loans, without considering that the declining interest rates that fueled past appreciation don't have much room left to move down, and that they'll be underwater on that huge loan if interest rates go up* an…
This is a way bigger problem in Canada, where fixed term mortgages are unavailable (and where price to income ratio is even more absurd than in the US).
Re: Home Price to Income Ratio
#334IMO we are in an inflationary cycle that is being underreported. Everything is becoming more expensive including you. It’s just that housing is becoming expensive faster than you are.
The US has a strong incentive to inflate their way out of debt post Covid. But the optics are catastrophic if they do it overtly. So they’ll keep reporting it low as long as possible. Look around you for reality.
If I’m right, you’ll want to take on as much fixed rate low-interest debt as you can stomach. Which explains why housing is getting expensive faster than you are.
Re: Home Price to Income Ratio
#335A more relevant metric to consider - monthly mortgage payment to monthly income ratio. Average interest rates in 2007 were 6.34% vs ~2.80% today. [1] * 6.34% / $2,000 monthly payment / 20% down (~$65k) >> $328,319 price of home * 2.80% / $2,000 monthly payment / 20% down (~$98k) >> $489,794 price of home Homebuyers will make purchasing decision based on their monthly mortgage payments, instead of the home price. When…
> Homebuyers will make purchasing decision based on their monthly mortgage payments, instead of the home price. Which is crazy, right? People max out their "borrowing power" at low interest rates and take on huge loans, without considering that the declining interest rates that fueled past appreciation don't have much room left to move down, and that they'll be underwater on that huge loan if interest rates go up* an…
As long as most people in the U.S. buy houses with 30-year fixed mortgages, the total cost of a house will be 30 * 12 * monthly mortgage payment. When interest rates are low but home prices are high, they don't pay any more over the life of the loan. (Someone who buys when rates are high but prices are low does have the option to refinance, though, which is not available to someone who buys when prices are high.) The change in interest rates effectively shifts which portion of the buyer's income goes to the lender vs. the seller.
This is similar to how increases in local incomes are actually captured by landlords rather than workers. If housing is scarce and people need it to live, owners of that housing have the bargaining power to raise prices to capture available income.
Re: Home Price to Income Ratio
#336I have in my head the rule of thumb that you can afford a house 3x your annual income (or a mortgage 28% of your monthly[1]). I don't see the line crossing 3 anywhere on that chart. [1]Which translates to 4.2 on a 80/20 loan
> I don't see the line crossing 3 anywhere on that chart.
The chart is for the average house, but the median income. Maybe the higher income are skewing the distribution of house prices.
Re: Home Price to Income Ratio
#337Earlier quoted context omitted.
That's CPI, not inflation. CPI has a number of ways that a thumb may be put on the scale, for example hedonic quality adjustments seem to me to be highly subjective.
Right, vs REAL inflation, which is measured by whatever I think happens to be too expensive right now.
Cheap TVs but have to rent forever, landlord caused cockroach infestation to get me to leave rent control.
But a 720p TV is cheap!
Re: Home Price to Income Ratio
#338How 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…
The amount of private equity in housing is really underreported I think - still the vast majority of people owning second homes or additional property are doing it for investments, but there is nothing stopping an “uber for housing” where they use VC money to buy up massive amounts of properties and influence pricing. I believe this is one of Zillow’s primary models. My take is that we need to treat housing as an act…
> That sort of exists in the mortgage interest tax deduction but with rates near 0 that’s become far far less effective.
FYI, mortgage interest on an investment property is also tax deductible. In fact, there's no limit on it like there is on your own personal-use home. It's basically treated like a business expense (which, arguably, it is).
Re: Home Price to Income Ratio
#339Earlier quoted context omitted.
I don’t know how it works in US but can’t you just opt for fixed interest rates ?
Yes, you can, but it doesn't address the problem mentioned above. >> the declining interest rates that fueled past appreciation don't have much room left to move down, and that they'll be underwater on that huge loan if interest rates go up* and the value of the property declines. The price you can charge for something is related to how much other people can pay for it. If houses are usually bought with loans (which…
In practice, when interest rates went sky high in 1980 the price of home didn't actually drop very much. Instead, liquidity dried up. Nobody bought homes; nobody sold homes. The few people who had to sell their homes got screwed, but in general people rarely have to sell their homes unless they get transferred to a new office and don't have enough to buy a house there in cash (which is very attractive when interest rates are high; when borrowed money is expensive, houses get cheap to match what you can borrow, and if you happen to have money, you just don't borrow and take advantage of the cheap prices to pay cash).
Re: Home Price to Income Ratio
#340Earlier quoted context omitted.
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?
> Don't you get the value of the money back for all taxation, according to any theory that approves of taxation?
Roughly speaking, anyone paying more in taxes than the per capita spending is probably not receiving the full value of their taxes. We see this where most welfare (Pell Grants, SNAP benefits, Obamacare, etc) and tax credit schemes (CTC, electric car credit, etc) phase out as people pay more taxes.