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Home Price to Income Ratio

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Re: Home Price to Income Ratio

#381

Post by llbeansandrice »

Macha wrote: post #376
llbeansandrice wrote: post #372

Earlier quoted context omitted.

Why do people think you need 20% down? You don't need 20% down on a mortgage. There are first-time home buyer loans where you can put down as little as 0% and for conventional loans you just have to buy personal mortgage insurance if you're below 20% down. This is such a weird home buying myth and I don't understand how it sticks around.

For some countries, there are legal requirements about maximum LTV. e.g. in Ireland the limit is 90% for a first time buyer of a personal home, and 70% otherwise.

Fair enough, I made the US-centric mistake but 10% is vastly different than 20%.

Re: Home Price to Income Ratio

#382

Post by cronix »

llbeansandrice wrote: post #372
nly wrote: post #365

Earlier quoted context omitted.

Interest rates are irrelevant when you can only borrow 4.5x income but home prices are at 8-9x Interest rates are irrelevant when you need 20% down and it will take you a decade to save that up while renting, because of said multiple.

Why do people think you need 20% down? You don't need 20% down on a mortgage. There are first-time home buyer loans where you can put down as little as 0% and for conventional loans you just have to buy personal mortgage insurance if you're below 20% down. This is such a weird home buying myth and I don't understand how it sticks around.

> you just have to buy personal mortgage insurance if you're below 20% down.

You end up paying more in the long run when you add on PMI. I think they are internally conflating "should be avoided" with "can't." I do that with personal things all the time when I tell myself I can't do something that I shouldn't, but actually can do.

Re: Home Price to Income Ratio

#383

Post by tayo42 »

llbeansandrice wrote: post #372
nly wrote: post #365

Earlier quoted context omitted.

Interest rates are irrelevant when you can only borrow 4.5x income but home prices are at 8-9x Interest rates are irrelevant when you need 20% down and it will take you a decade to save that up while renting, because of said multiple.

Why do people think you need 20% down? You don't need 20% down on a mortgage. There are first-time home buyer loans where you can put down as little as 0% and for conventional loans you just have to buy personal mortgage insurance if you're below 20% down. This is such a weird home buying myth and I don't understand how it sticks around.

Isn't pmi pretty significant?

Re: Home Price to Income Ratio

#384

Post by game_the0ry »

barneysversion wrote: post #360
lotsofpulp wrote: post #311

Earlier quoted context omitted.

> Which is crazy, right? No, because this is not accurate: > Homebuyers will make purchasing decision based on their monthly mortgage payments, instead of the home price. Homebuyers make their purchasing decisions based on the options available to them. They are not paying $x because they can afford $x+1, they are paying $x because that is how much they are willing to spend on that specific house in that specific loc…

> If you are projecting a receding economy and/or decreased demand for the land you are buying, then it does not make sense to pay as much as you can afford... I think this is the above commenter's concern; homebuyers are not adequately pricing the risk of rising interest rates. If interest rates go up, demand falls and you're left in a highly leveraged position that amplifies your losses. Monthly mortgage payments d…

Bingo.

> If interest rates go up, demand falls and you're left in a highly leveraged position that amplifies your losses.

There is a reason why debt is called “leverage” - it leveraged investment returns up when your the exit works out.

But it also leverages return losses down when the exit doesn’t work out.

Re: Home Price to Income Ratio

#385

Post by [deleted] »

llbeansandrice wrote: post #372
nly wrote: post #365

Earlier quoted context omitted.

Interest rates are irrelevant when you can only borrow 4.5x income but home prices are at 8-9x Interest rates are irrelevant when you need 20% down and it will take you a decade to save that up while renting, because of said multiple.

Why do people think you need 20% down? You don't need 20% down on a mortgage. There are first-time home buyer loans where you can put down as little as 0% and for conventional loans you just have to buy personal mortgage insurance if you're below 20% down. This is such a weird home buying myth and I don't understand how it sticks around.

[deleted]

Re: Home Price to Income Ratio

#386

Post by qwerty456127 »

To me it feels like home prices are the single most important bug in the economy.

If we filter out skilled IT professionals (and other high-paid jobs), fundamentally rich people and also extremely poor (homeless in developed countries and those living in stick/garbage huts in the "3-rd world"), the rest mostly spend almost all their income on paying for their home.

We invent new technologies but average homes become neither more affordable nor more perdurable.

The fact most of the ordinary people can never afford buying/building a home without taking a loan they will have to pay for decades to come seems outrageously absurd to me.

Re: Home Price to Income Ratio

#387

Post by ArchOversight »

cronix wrote: post #382
llbeansandrice wrote: post #372

Earlier quoted context omitted.

Why do people think you need 20% down? You don't need 20% down on a mortgage. There are first-time home buyer loans where you can put down as little as 0% and for conventional loans you just have to buy personal mortgage insurance if you're below 20% down. This is such a weird home buying myth and I don't understand how it sticks around.

> you just have to buy personal mortgage insurance if you're below 20% down. You end up paying more in the long run when you add on PMI. I think they are internally conflating "should be avoided" with "can't." I do that with personal things all the time when I tell myself I can't do something that I shouldn't, but actually can do.

PMI for me is $71 a month. Which meant I could save money and use it towards home improvement to make my house better for me (and also increase its value).

Putting down 20% doesn't make sense in my case, since home prices continuing to increase and me adding home improvements that increase the value of my home I will be able to refinance my loan in a little over 2 years to get rid of the PMI, and still have spent way less than the 20% down would have cost me.

Re: Home Price to Income Ratio

#388

Post by game_the0ry »

jbjbjbjb wrote: post #364
barneysversion wrote: post #360

Earlier quoted context omitted.

> If you are projecting a receding economy and/or decreased demand for the land you are buying, then it does not make sense to pay as much as you can afford... I think this is the above commenter's concern; homebuyers are not adequately pricing the risk of rising interest rates. If interest rates go up, demand falls and you're left in a highly leveraged position that amplifies your losses. Monthly mortgage payments d…

But if you go one move deeper central bankers will factor the high leverage in and therefore won’t increase rates.

In order for central banks to mitigate future recessions, they need be able to make rates go down too, not just not increase them. And when rates increasingly approach zero, there won’t be much they can do, except buy the assets - which they have done and are not supposed to.

Re: Home Price to Income Ratio

#389

Post by r00fus »

nly wrote: post #365
game_the0ry wrote: post #284

A 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…

Interest rates are irrelevant when you can only borrow 4.5x income but home prices are at 8-9x Interest rates are irrelevant when you need 20% down and it will take you a decade to save that up while renting, because of said multiple.

FHA loans require as little as 3% down. Payments are higher due to PMI, etc., but not a showstopper.

Re: Home Price to Income Ratio

#390

Post by hourislate »

heavyset_go wrote: post #371
jbay808 wrote: post #333

Earlier quoted context omitted.

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).

If anyone in the US thinks "housing costs can't keep rising, the market will correct itself", then just look at Canada. The average sale price of a home in the US is roughly $375k. In Canada, it is about $700k, and property values continue to rise.

I guarantee that housing in Toronto will continue to climb at 10%-15 % per year. Housing is the only thing keeping the Canadian economy afloat. The BoC has no choice anymore, they will pay your mortgage if necessary. I dare them to raise rates to just 5%, there will be a collapse that will leave half the country in the streets. If you can afford to buy, buy with both hands. You will double your money in the next 5 years, a house in Toronto will be over 5 million in the next decade.
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