Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Home Price to Income Ratio

longtermtrends.net

Post reply on HN
Print view View original

571–580 of 704 posts

Re: Home Price to Income Ratio

#571

Post by hapless »

moosedev wrote: post #463
xyzzy123 wrote: post #457

Earlier quoted context omitted.

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.

Fixed rate mortgages are subsidized by the US government, that's why. The mechanism of the subsidy is extremely complicated, but it is not a small effect.

Before the creation of the enormous state-owned insurance corporations and government programs to drive down those fixed rate mortgage costs, American mortgages were usually short-term, with giant balloon payments. Those short-term, balloon-payment mortgages went bust in huge numbers during the Great Depression, creating pressure on the government to "do something."

Say what you will about American housing policy, but those 15- and 30-year mortgage arrangements are very stable.

Re: Home Price to Income Ratio

#572

Post by hapless »

aidenn0 wrote: post #498
moosedev wrote: post #463

Earlier quoted context omitted.

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.

The weird thing is that 5 year adjustable rates are higher then 30yr. fixed. That only makes sense if interest rates will go down over the next 5 years, which seems unlikely to me.

Fixed-rate mortgages are government-subsidized by a range of mechanisms (Fannie, Freddie, FHA, etc)

Adjustable-rate mortgages are not.

Re: Home Price to Income Ratio

#573

Post by oblio »

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?

Europe has them. They're not ridiculous. 1.5% fixed for 25 years is somewhat common.

Re: Home Price to Income Ratio

#574

Post by raducu »

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…

What happens when interest rates go up?

That's right, interest rates cannot go up, or else these people will be screwed.

The same for stock market.

Ok, so we bail out these people/investors at the cost of catastrophic failure in the future.

Because money/markets are irrelevant, all that matters is access to cheap money and access to central bank bailouts.

Re: Home Price to Income Ratio

#575

Post by gspr »

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…

This is my worry too. I just sold, with the intention of buying back into the market (in a different city). I'm terrified by the amount of people maxing out their abilities to handle the mortgage even at today's incredibly low interest rate. I'm making sure I can handle a quadrupling comfortably – but also those of us acting like that suffer (or will suffer, when there's a crash) the consequences of the reckless ones.

I don't like the feeling of a market where trying to be a rational actor barely helps.

Re: Home Price to Income Ratio

#577

Post by gspr »

woobar wrote: post #432
somehnacct3757 wrote: post #342

Earlier quoted context omitted.

If you focus on mortgage payment instead of home price, you also need to take mortgage term length into account for a generational study. 30 year mortgages only came about in the 1950's. Before then the choices were typically 15 and 20 years.

And in Europe they have 100 year mortgages. US still have plenty of options to make monthly payments affordable.

Isn't this a uniquely Dutch thing?

Re: Home Price to Income Ratio

#578

Post by bongoman37 »

rayiner wrote: post #379
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…

> 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. Certified brown person here. The only thing I think about in terms of deciding where to stop is how far I can get before needing gas, and what the odds of finding decent food are. I've travelled in rural areas all over the country: midwest (my wife grew up in rural iowa), west coast (wife's f…

This is immaterial. People can be very welcoming to tourists and hostile to the very same people as immigrants. As a brown person who drove extensively through the US both North and South you would mostly see very welcoming people, the same places you would hear horror stories from people like me who actually lived there.

Re: Home Price to Income Ratio

#579

Post by [deleted] »

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…

[deleted]

Re: Home Price to Income Ratio

#580

Post by lottin »

conductr wrote: post #488
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…

> what I expect is actually happening here is people are anticipating high inflation That's why price to income is an interesting metric. High inflation without income rise just means people feel worse off and a correction will occur. Housing, along with many other things, are competing for people's wallet. Interestingly, covid is causing a labor shortage and income to rise at the low ends. I suspect stagnating in th…

Inflation implies wages rise at the same rate as the price level. Otherwise it's not inflation. Not every price hike is inflation.
Post reply on HN