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Home Price to Income Ratio

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Re: Home Price to Income Ratio

#441

Post by mind-blight »

tayo42 wrote: post #383
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.

Isn't pmi pretty significant?

Not compared to everything else. Move was $60 with 10% down on a $350k condo. Total monthly payment was amosr $2100 per month including the HOA

Re: Home Price to Income Ratio

#442

Post by notJim »

dpweb wrote: post #118
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…

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.

I'm not really sure the "dollar worth less" framing is super helpful, but maybe I'm wrong. I think it's a little better to specify in what context we're talking about.

Actual inflation is generally low aside from short-term issues, but "asset inflation" if you want to call it that is high. I think the most important thing in terms of day-to-day existence is CPI-type measures that reflect your ability to consume things with money. If you can't do that anymore, then it becomes a real problem for everyday life, as people are unable to afford things they need. But that's not that situation we're in.

The situation we're in is that assets are over-valued across the board, including in the stock market and housing. I think the risk here is that once you're in this situation, getting out of it is really hard. If we allow housing prices to fall (by raising rates, for example), what happens to all the people who are now underwater on their mortgages? If value is erased from the stock market, a lot of people are going to be left holding the bag. Is there a plausible way we can get out of this situation?

Re: Home Price to Income Ratio

#443

Post by quantumBerry »

joe_the_user wrote: post #440
quantumBerry wrote: post #412

Earlier quoted context omitted.

The cheapest land on which you could build a yurt or small cabin (illegally) in Berkeley I found on realtor is 60k (it is pending sale). The cheapest house is well north of 200k. You could build your own yurt or cabin for only 10 grand. You're joking yourself if that isn't very cheap by comparison. [1] https://www.realtor.com/realestateandhomes-detail/55-Panoram...

If you are talking of hypotheticals, there are a substantial number of ex-hippies who'd let ten people set up ten yurts in the back/unused parts of their property. Which is to say that you are correct that zoning is a force that keeps the cost of housing high.

Great, will I be able to register my kid for public school there after doing so? I'll put the yurt down as my primary residence; I hear Berkeley has good public schools. If so give me their contact information and I will take a serious look at getting set up.

Re: Home Price to Income Ratio

#444

Post by bussierem »

tayo42 wrote: post #383
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.

Isn't pmi pretty significant?

I just bought a house, and put 10% down on the house. What I learned:

- PMI is really not as expensive as you might think. I pay ~$150/mo extra and all told my mortgage is just over $2k/mo

- PMI rate depends on a LOT of factors, including your lender's terms, your own credit history, and even the amount you put down. Your PMI gets re-evaluated yearly and the closer you are to the 20% equity on the house, the less PMI you pay. You can actually even get PMI waived as early as 18% sometimes, if you remember to ask them.

Re: Home Price to Income Ratio

#445

Post by OJFord »

nostrademons wrote: post #335
throwdecro wrote: post #304

Earlier quoted context omitted.

> 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…

Do you really have 30 year fixed rates? They must be ridiculous?

Re: Home Price to Income Ratio

#446

Post by tharkun__ »

chuckee wrote: post #397
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…

While I completely agree with you that any sane person _should_ want to know the final price and make decisions based on that, a lot of people actually don't and they only look at what they will pay per month/week for something.

I personally know multiple people that do this and like you I can't fathom why but they do. '"Need" a new couch? How much does it cost me per month? Oh yeah I can afford that.' Nevermind that the couch they don't really need (but want) costs them way more and they will very probably need/want a new one before this one is paid off. Same with cars and many many other items. Sellers perpetuate this, especially on bigger ticket items. I suppose it's a "natural progression". People can't afford the item they want. Sellers have no more buyers. But if you sell it to them with a loan and a small monthly payment, suddenly the buyers can afford it. How do you think 96 month car loans came about?

Re: Home Price to Income Ratio

#447

Post by slaymaker1907 »

nostromo wrote: post #173
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-a…

You are still way better off buying a house during high interest rates. While you can refinance a high interest rate away, the reverse has a lot more risky (overpay during low interest rates and try to recover cost via appreciation).

Re: Home Price to Income Ratio

#448

Post by wyclif »

shados wrote: post #252
itake wrote: post #112

Earlier quoted context omitted.

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 pair…

What do you think are the best books to recommend to people who don't have enough financial literacy? This is a common theme in this kind of HN thread but I haven't seen many recommendations or lists of books that can help people level up in their financial wisdom.

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).

I'm hoping WFH greatly disrupts this, opening up rural areas to tech workers. It won't work for everybody, but it does work for SWEs and many kinds of technology employees and contractors.

Re: Home Price to Income Ratio

#449

Post by llbeansandrice »

tayo42 wrote: post #383
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.

Isn't pmi pretty significant?

I've not seen it above $100/month. More commonly ~$60-$90. I suppose it depends on what your definition of "significant" is.

Re: Home Price to Income Ratio

#450

Post by notJim »

willcipriano wrote: post #132
the_gastropod wrote: post #120

Earlier quoted context omitted.

I know this is a common belief in the hilarious world of crypto enthusiasts. But, y'know, we measure inflation, and what you're suggesting is just flat out not true. https://tradingeconomics.com/united-states/inflation-cpi

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.

Hedonic quality adjustments are necessary though. If people start buying smartphones instead of dumb flip phones, it's not a sign that there is massive inflation in telecom sector, it's a sign that they're getting a lot of value. The BLS's own example uses TVs [1]. When you went from a $200 20" CRT to a $1000 dollar 42 inch plasma, that 5x increase in price is not because your money was less valuable, it's because you're spending 5x the money and getting 5x the goods.

1: https://www.bls.gov/cpi/quality-adjustment/questions-and-ans...

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