Home Price to Income Ratio • Hacker News Board

Re: Home Price to Income Ratio

#591

Post by OJFord » Tue, Sep 21, 2021, 8:21 AM UTC

topkai22 wrote: post #468

OJFord wrote: post #445

Earlier quoted context omitted.

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,…

Interesting. Higher than here currently of course - I was recently quoted 1.16% for a five year fix - but I've never heard of being able to lock in something pretty reasonable for the full term/30y like that.

But are lower shorter term fixes also available? Presumably the 30y fix is a pretty stable rate, and just acts as an upper bound? So why not go with anything available that's lower, with that as a worst case fallback that's unlikely to be materially different after x years?

Re: Home Price to Income Ratio

#592

Post by qwerty456127 » Tue, Sep 21, 2021, 8:33 AM UTC

SilverRed wrote: post #456

qwerty456127 wrote: post #386

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…

Seems to me that there are two problems. As jobs and facilities are becoming more centralized. Cities are expanding and rural towns are shrinking. So even without any population growth, houses that people actually want become more expensive. And the second problem is the expectation that a piece of land near a city will always be more in demand tomorrow than it is today. This is almost certainly true based on the fir…

> The only solution I can possibly see is moving more people from single family houses in to apartment buildings which allows virtually infinite supply within close range to jobs

This is convenient in a lot of ways (e.g. apartment-first cities have better public transport and less segregation) but doesn't really solve this particular problem. The apartments still are very expensive and the prices grow rapidly. Again nobody except rich entrepreneurs can afford buying them without a mortgage and the rent still is everyone's single biggest expense. I even suspect even Hongkongers living in "cage homes" still spend the most of their income on these.

Re: Home Price to Income Ratio

#593

Post by raducu » Tue, Sep 21, 2021, 8:33 AM UTC

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…

> - My monthly payments are identical to had I bought at $600k at 6%

I'm not sure how it works in the US, but where I live, you have a fixed interest rate for a couple of years max, after that you pay the market rate.

So in your case, if you had a fixed interest rate for 3-5 years, after those years pass, you'd have also a massive increase in mortgage payment, plus your house severely depreciating.

Re: Home Price to Income Ratio

#594

Post by Mvandenbergh » Tue, Sep 21, 2021, 8:41 AM UTC

gspr wrote: post #576

oblio wrote: post #573

Earlier quoted context omitted.

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

Where?!

According to the ECB, https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2322~0ed0879d... :

"FRMs are dominant in Belgium, France, Germany and the Netherlands, while ARMs are prevailing in Austria, Greece, Italy, Portugal and Spain"

UK is also ARM but not included as not in euro zone.

Note that at least in the NL market which is the only one I know personally, lots of people do get shorter term fixes compared to the US where almost every mortgage is fixed for its lifetime.

Re: Home Price to Income Ratio

#595

Post by brailsafe » Tue, Sep 21, 2021, 8:45 AM UTC

Seems like there were a few memory leaks in the last century.

Re: Home Price to Income Ratio

#596

Post by brailsafe » Tue, Sep 21, 2021, 8:51 AM UTC

raducu wrote: post #593

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…

> - My monthly payments are identical to had I bought at $600k at 6% I'm not sure how it works in the US, but where I live, you have a fixed interest rate for a couple of years max, after that you pay the market rate. So in your case, if you had a fixed interest rate for 3-5 years, after those years pass, you'd have also a massive increase in mortgage payment, plus your house severely depreciating.

That seems to be the case where I live as well, though I believe there is a way to lock in an interest rate for longer. (Not a homeowner)

If interest rates rise to 6% and you've got 2.5%, the advantage would last that long. However, I know interest is front-loaded to the first few amortization periods, so maybe it would be more significant.

Re: Home Price to Income Ratio

#597

Post by goodcanadian » Tue, Sep 21, 2021, 8:52 AM UTC

raducu wrote: post #593

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…

> - My monthly payments are identical to had I bought at $600k at 6% I'm not sure how it works in the US, but where I live, you have a fixed interest rate for a couple of years max, after that you pay the market rate. So in your case, if you had a fixed interest rate for 3-5 years, after those years pass, you'd have also a massive increase in mortgage payment, plus your house severely depreciating.

The U.S. is unusual in that rates being fixed for the full 30 year term of the mortgage is normal. They do tend to wind up with somewhat higher interest rates as a result, however.

Re: Home Price to Income Ratio

#598

Post by scrollaway » Tue, Sep 21, 2021, 8:55 AM UTC

bernawil wrote: post #550

tomkat0789 wrote: post #119

Earlier quoted context omitted.

Me too! I think the average American thinks "increase supply" means skyscrapers with apartments, rather than lower impact multiunit, mixed-use apartments/street shops that are more common in Europe. Another issue with increasing supply/density: where is every household going to park its 2-3 cars?! (Disclaimer: I've been watching tons of City Beautiful and Not Just Bikes on Youtube)

people are arguing here that housing in Europe is even less affordable than in the US, so what is even the point?

The demand in Europe is just as high as in the US. Density is not the same however... Think about how large European cities would have to be in order to match US population at US density.

We don't have as many skyscrapers here.

Regardless there are plenty of reasons not to want car-centric suburbian neighbourhoods. Unwalkable, outrageously expensive to maintain, encourages car ownership and usage (yay more debt and running costs), etc.

Re: Home Price to Income Ratio

#599

Post by lottin » Tue, Sep 21, 2021, 9:11 AM UTC

fcsp wrote: post #358

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…

This is something that has been keeping me wondering for years. Since the financial crisis the European Central Bank has basically fixed base rate at negative (since 2012), leaving the market flooded with desperate investment money (due to all old school investment options becoming a negative) Now also of course since it's "cheap" the real estate prices have almost doubled in that timespan, having previously hovered…

In theory, a fall in nominal interest rates below the real rate of return of capital should spur investment, since entrepreneurs can borrow funds at a low rate to expand production capacity or start new businesses and obtain a higher rate of return. The reality is we don't see much investment going on, and at some point the ECB will have to face up to the fact that the low interest policy doesn't work.

Re: Home Price to Income Ratio

#600

Post by polskibus » Tue, Sep 21, 2021, 9:39 AM UTC

polskibus wrote: post #203

Doches wrote: post #133

Earlier quoted context omitted.

> For 99% of you that means living far away from your preferred locale among people you probably loath. Parent comment is vitriolic but not actually wrong. Myself, I take great comfort in the idea of huge swaths of liberal, well-educated millennials and xennials migrating out of coastal cities and into small towns across the South and Midwest. Can you work remotely? Want to own your own home on a multi-acre lot for $…

Hey, you can leave US you know. Europe will probably gladly have you.

I have no idea why I have been downvoted. There are many comments on HN recommending immigration to US, whereas people can remote work from Europe too. There are plenty of places where you can live well as English-speaking person. It does not have to be a capital of an EU state, there is plenty to choose from, esp. when working remotely.