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Home Price to Income Ratio

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Re: Home Price to Income Ratio

#391

Post by spywaregorilla »

throwdecro wrote: post #304
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…

> 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…

> without considering that the declining interest rates that fueled past appreciation don't have much room left to move down

Negative is inevitable, imo

If the value of your home rises, you've effectively taken out a hugely profitable leveraged loan, which is historically pretty common. Which is far from guaranteed of course, but broadly speaking it was an amazingly lucrative move for many many people.

Re: Home Price to Income Ratio

#392

Post by nly »

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.

In the UK less than 50% of mortgages are fixed for terms of longer than 5 years.

...and less than 1% of recent mortgage completions are with 5% deposits (the minimum here)[0]

There is one big reason deposit size matters: affordability and risk. PMI doesn't exist in the UK, it's built in to the rate. When you're stretching what you're borrowing to the maximum (thanks to these high price/income multiples) every 1% on a mortgage can be the difference between relative comfort, and being 'House Poor' and living with constant anxiety about rates rising before you can refinance.

At the moment with 10% down:

- 25 year fix: 4.64%

- 5 year fix: 2.50%

- 2 year fix: 2.10%

With 20% down:

- 25 year fix: 3.80%

- 5 year fix: 1.70%

- 2 year fix: 1.40%

The other thing, that some other commenters have mentioned is that most lenders won't lend at high LTVs on high value properties, or on certain property types, like flats (minimum deposits of 20% on flats are common, which is particularly problematic given that they tend to be the most affordable properties).

[0] https://www.financialreporter.co.uk/mortgages/95-ltv-mortgag...

Re: Home Price to Income Ratio

#393

Post by joppy »

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…

Whatever the case, what you end up with is an asset whose actual value is tied to the interest rate (interest goes down, people can afford larger loans with the same repayments, therefore houses are worth more). This is a highly leveraged situation: if you take out a $1m loan and then interest rates go up, you're still liable for the whole $1m even though your actual asset might only be worth $900k now. I think this is one of the big dangers of having an essential need like housing cost such a large multiple of income.

Re: Home Price to Income Ratio

#394

Post by jasonladuke0311 »

Doches wrote: post #266
jdavis703 wrote: post #240

Earlier quoted context omitted.

> Live among people you disagree with -- we're all still Americans, it'll be OK I grew up in the American south, and migrated to California as an adult. As a Black person I can say this doesn’t work as well in practice. It’s better than the old days (when my mom was growing up segregation was still legal and the military warned her parents to be back on base before sunset.) But I’d much rather live in a welcoming are…

That is...a very fair qualification. I grew up white in the South, where my mom used to tell me stories about school integration. Knowing that my otherwise-welcoming neighbors/family/peers might randomly turn out to be racist assholes when confronted by someone of slightly different skin tone was and remains my least favorite thing about the place, by a margin that's wider than Texas. There's "be the change you want…

> the barbecue is amazing (except in the Carolinas)

how dare you

Re: Home Price to Income Ratio

#395

Post by davidandgoliath »

lolpython wrote: post #315
pjerem wrote: post #310

Earlier quoted context omitted.

I don’t know how it works in US but can’t you just opt for fixed interest rates ?

Yeah, you can. A random example I found from Rocket Mortgage is a 3.25% fixed interest rate for a $200,000 house. https://www.rocketmortgage.com/learn/30-year-fixed-mortgage-...

2.1% if you but ~$5k in points right now.

Re: Home Price to Income Ratio

#396

Post by victorbstan »

quantumBerry wrote: post #354
kimburgess wrote: post #345

Earlier quoted context omitted.

While this is accurate, a more concerning secondary impact is the increased deposit. In Australia specifically, house prices are soaring. The most in-demand markets increases are currently ~$1200 per day [1]. For many people their home is a more 'productive' than they are, greatly outpacing their own earning potential. Those who already have wealth can buy in, or continue to buy in and leverage themselves into the ma…

Raw land is cheap. Housing codes are what keep people like myself out of the housing market. If I could just dump a yurt on the land, or a cabin like our forefathers, then housing prices would be a total non issue. But a bunch of selfish NIMBYs are so scared of the poors building a yurt instead of a 2000 sq ft brick house for two people and a dog, they'll never allow it.

I think what you’re looking for is a “shanty town”. Plenty in third world countries especially by dumping sites. Enjoy your life.

Re: Home Price to Income Ratio

#397

Post by chuckee »

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…

> A more relevant metric to consider - monthly mortgage payment to monthly income ratio.

I find this attitude baffling. If you bought a car or a phone and paid in monthly installments, you would want to know for how long you'll be paying, not just the monthly amount. Why is a mortgage different?

Is it the duration, where your brain sees 20-30 years, and substitutes that with "forever"? How would you feel if, after 30 years, when you thought you finally paid off your mortgage, the bank would say "Oh actually you have to keep paying for another 30 years"?

Re: Home Price to Income Ratio

#398

Post by bobthepanda »

quantumBerry wrote: post #354
kimburgess wrote: post #345

Earlier quoted context omitted.

While this is accurate, a more concerning secondary impact is the increased deposit. In Australia specifically, house prices are soaring. The most in-demand markets increases are currently ~$1200 per day [1]. For many people their home is a more 'productive' than they are, greatly outpacing their own earning potential. Those who already have wealth can buy in, or continue to buy in and leverage themselves into the ma…

Raw land is cheap. Housing codes are what keep people like myself out of the housing market. If I could just dump a yurt on the land, or a cabin like our forefathers, then housing prices would be a total non issue. But a bunch of selfish NIMBYs are so scared of the poors building a yurt instead of a 2000 sq ft brick house for two people and a dog, they'll never allow it.

the problem is not really that, since you could just move out to the sticks and do that if you really wanted to. heck, some places in the Rust Belt literally give away homes.

the problem is that in our desirable cities, where people want to live (as evidenced by high prices per sq ft) we have more or less stopped the natural progression of single family houses into low-rise buildings, low-rise into mid-rise, and mid into high-rise.

Re: Home Price to Income Ratio

#399

Post by game_the0ry »

joppy wrote: post #393
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…

Whatever the case, what you end up with is an asset whose actual value is tied to the interest rate (interest goes down, people can afford larger loans with the same repayments, therefore houses are worth more). This is a highly leveraged situation: if you take out a $1m loan and then interest rates go up, you're still liable for the whole $1m even though your actual asset might only be worth $900k now. I think this…

Agreed

Re: Home Price to Income Ratio

#400

Post by kolbe »

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.

Interest rates are extremely relevant when institutional investors are such large players in the real estate market.

Also, the original submission noted that median homes cost 7x median income right now. That does not equate to 10 years of savings from responsible people.

Also, 5:1 leverage is extremely generous, and in a free market they would never happen because it’s insanely risky to the lender. That’s ignoring the fact that 20:1 is pretty common these days anyway. The only reason you can get such a generous loan is because the US government is responsible for it, and they’re the most inept financial institution on Earth.

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