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Home Price to Income Ratio

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Re: Home Price to Income Ratio

#461

Post by wildrhythms »

twofornone wrote: post #248
taurath wrote: post #183

Earlier quoted context omitted.

I think there’s plenty of real reasons people don’t do this economically, but don’t downplay the social parts of it - we have very Balkanized communities in the US. Ask a minority what it’s like going on a road trip sometime - I guarantee there’s many places where they won’t want to stop. Living in a place with no amenities, an extremely regressive/borderline extreme social climate and a lack of economic opportunity…

>I guarantee there’s many places where they won’t want to stop. As someone who recently made the jump to a rural area, these problems are almost entirely imaginary. The notion of backwards, ignorant, racist rednecks occupying all the rural lands is nothing but a bigoted stereotype. Southern hospitality is real; and while rural peoples will be more likely to notice and acknowledge cultural differences, they generally…

This contradicts with my experience growing up in WV. The last time I went back there (5 years ago) I still saw the same confederate flags and n-words being thrown around casually. The reality is that 'the south', like anywhere, has pockets of diversity and acceptance; but your stereotype of universal 'southern hospitality' is not in line with my experience at all.

Re: Home Price to Income Ratio

#462

Post by onlyrealcuzzo »

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…

Also relevant is the ability to get interest only loans.

If central banks are GUARANTEEING asset inflation of >2% - that's an 10% return on 5:1 leverage - that beats the S&P.

If you can get an interest only loan, and be cash-flow neutral - as long as central banks keep a mandate for assets to appreciate >2% (spoiler, they have to or irresponsible governments fail) - housing is a good investment.

It sucks that they've manipulated the market so much. But when >50% of the economy is debt and the cost of debt is price fixed, that's a lot of manipulation...

Re: Home Price to Income Ratio

#463

Post by moosedev »

xyzzy123 wrote: post #457
woofie11 wrote: post #434

Earlier quoted context omitted.

Kinda. If I buy a 1M home at 2.5% interest, I have a $4,000 monthly payment. If rates go to 6%: - Housing prices plummet to $600,000, assuming people are willing to spend the same per month. - My monthly payments are identical to had I bought at $600k at 6%. If I stay there, I'm not much worse off. It's harder to pay off the home quickly. - If I move out, and I rent out my home, it covers monthly payments approximate…

Not sure about the US but fixed-rate term in Australia is about 5 years. Nobody would give you a 30 year fixed rate. You'd eventually have to pay 6% on the $1M.

30 year fixed rate is actually the “normal”/common mortgage in the US.

I moved to the US from the UK, where mortgages look more like Australia’s, and I still find it amazing you can fix such a low rate for so long here.

Re: Home Price to Income Ratio

#464

Post by sbakzbsmx »

xyzzy123 wrote: post #457
woofie11 wrote: post #434

Earlier quoted context omitted.

Kinda. If I buy a 1M home at 2.5% interest, I have a $4,000 monthly payment. If rates go to 6%: - Housing prices plummet to $600,000, assuming people are willing to spend the same per month. - My monthly payments are identical to had I bought at $600k at 6%. If I stay there, I'm not much worse off. It's harder to pay off the home quickly. - If I move out, and I rent out my home, it covers monthly payments approximate…

Not sure about the US but fixed-rate term in Australia is about 5 years. Nobody would give you a 30 year fixed rate. You'd eventually have to pay 6% on the $1M.

Ya, the US has fixed 30 year rates. Interest rates are higher going from a 15 year to a 30 year to price in some of the risk to the bank.

The difference every time I bought a house was about 1%

Re: Home Price to Income Ratio

#465

Post by xyzzy123 »

mywittyname wrote: post #225
munk-a wrote: post #189

Earlier quoted context omitted.

Even when the world ran on the gold standard not all value was actually backed by anything - now we're not even close. You can pick a stick up off the ground and whittle it into a boat - you have, by doing so[1], made the dollar worth slightly more since, for all the dollars in existence, there are now more goods to purchase. Inflation is spurred to increase over time for a variety of reasons - but asset accrual is n…

> 1. In a very very infinitesimally unmeasurably minor manner. Great point. And to explicit what you're alluding to: we live in a world where factories around the world are running 24/7 producing trillions of items with infinitesimally small values relative to global wealth. But none-the-less, these goods at up to real value.

Meanwhile entropy is eroding the value of many of the made and manufactured things in the world. Termites are eating houses, cars are wearing out, children are breaking toys, clothes get holes in them...

Re: Home Price to Income Ratio

#466

Post by farmerstan »

xyzzy123 wrote: post #457
woofie11 wrote: post #434

Earlier quoted context omitted.

Kinda. If I buy a 1M home at 2.5% interest, I have a $4,000 monthly payment. If rates go to 6%: - Housing prices plummet to $600,000, assuming people are willing to spend the same per month. - My monthly payments are identical to had I bought at $600k at 6%. If I stay there, I'm not much worse off. It's harder to pay off the home quickly. - If I move out, and I rent out my home, it covers monthly payments approximate…

Not sure about the US but fixed-rate term in Australia is about 5 years. Nobody would give you a 30 year fixed rate. You'd eventually have to pay 6% on the $1M.

I have a 30 year fixed rate mortgage of 2.375%. In the US, 30 year fixed is common.

Re: Home Price to Income Ratio

#467

Post by sbakzbsmx »

xyzzy123 wrote: post #457
woofie11 wrote: post #434

Earlier quoted context omitted.

Kinda. If I buy a 1M home at 2.5% interest, I have a $4,000 monthly payment. If rates go to 6%: - Housing prices plummet to $600,000, assuming people are willing to spend the same per month. - My monthly payments are identical to had I bought at $600k at 6%. If I stay there, I'm not much worse off. It's harder to pay off the home quickly. - If I move out, and I rent out my home, it covers monthly payments approximate…

Not sure about the US but fixed-rate term in Australia is about 5 years. Nobody would give you a 30 year fixed rate. You'd eventually have to pay 6% on the $1M.

@moosedev

Ya, my dad in Canada keeps encouraging me to buy property given the mortgages. Has its downsides, but over all its brilliant.

Re: Home Price to Income Ratio

#468

Post by topkai22 »

OJFord wrote: post #445
nostrademons wrote: post #335

Earlier quoted context omitted.

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?

That’s the standard in the US. Current rates are about 2.75%, although they went below 2.5% for a bit earlier this year.

Those rates are for 20% down, good credit primary residences purchases. Rates for investment or vacation properties are generally about 1-2 percentage points higher.

Mortgage rates in the US are indirectly and directly subsidized by the government across a huge spectrum of programs- See FHA loans, VA loans, etc. However one of the biggest contributors to low 30 year prices are the government backed corporations like Fannie Mae and Freddie Mac that purchase mortgage debt and repackage it into mortgage backed securities. Way too much the go into here, but a lot of the 2008 financial crisis has its roots in the policies that created Fannie Mae and Freddy Mac. Regardless, they have proven a fairly effective way to keep mortgage rates low.

Re: Home Price to Income Ratio

#469

Post by jrochkind1 »

woofie11 wrote: post #434
joppy wrote: post #393

Earlier quoted context omitted.

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…

Kinda. If I buy a 1M home at 2.5% interest, I have a $4,000 monthly payment. If rates go to 6%: - Housing prices plummet to $600,000, assuming people are willing to spend the same per month. - My monthly payments are identical to had I bought at $600k at 6%. If I stay there, I'm not much worse off. It's harder to pay off the home quickly. - If I move out, and I rent out my home, it covers monthly payments approximate…

> If I move out, and I rent out my home, it covers monthly payments approximately exactly.

That's not actually sustainable. You have repairs you're going to need to do, sometimes unexpectedly large ones. You have tenants that move out, and then marketing expenses and/or vacancies. If you're unlucky you have bad tenants that do damage or don't pay or need to be evicted after not paying.

It can work temporarily (unless you are unlucky), waiting for a better time to sell. But most people who need to move don't really want to be in the landlord business, and it is a business with financial risk and headaches.

Re: Home Price to Income Ratio

#470

Post by jrochkind1 »

xyzzy123 wrote: post #457
woofie11 wrote: post #434

Earlier quoted context omitted.

Kinda. If I buy a 1M home at 2.5% interest, I have a $4,000 monthly payment. If rates go to 6%: - Housing prices plummet to $600,000, assuming people are willing to spend the same per month. - My monthly payments are identical to had I bought at $600k at 6%. If I stay there, I'm not much worse off. It's harder to pay off the home quickly. - If I move out, and I rent out my home, it covers monthly payments approximate…

Not sure about the US but fixed-rate term in Australia is about 5 years. Nobody would give you a 30 year fixed rate. You'd eventually have to pay 6% on the $1M.

Damn, I would assume houses must be much cheaper in Australia than in the US? Or only the very very rich can afford to buy their own home? (Or is it amortized over more than 5 years, you just have a balloon you need to refinance?)

In the US, where 30-year mortgages are standard, the LARGE majority of homeowners would not be able to afford payments on their home amortized over only 5 years.

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