Home Price to Income Ratio • Hacker News Board

Re: Home Price to Income Ratio

#631

Post by rayiner » Tue, Sep 21, 2021, 2:57 PM UTC

wildrhythms wrote: post #461

twofornone wrote: post #248

Earlier quoted context omitted.

>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.

Appalachia is very different than the rest of the south, much less rural areas in other parts of the country. It was populated by Scots-Irish herders, versus say German farmers in the rural midwest.

Appalachian culture is extremely insular, even with respect to other white people. I once had a conversation with a (white) guy who had married into a family in Appalachian Kentucky. Folks in town regarded him as an outsider even after a decade of living there.

Re: Home Price to Income Ratio

#632

Post by thehappypm » Tue, Sep 21, 2021, 3:02 PM UTC

fredestine wrote: post #582

fshbbdssbbgdd wrote: post #458

Earlier quoted context omitted.

I have a ~million dollar fixed rate mortgage. If rates go up, I’ll be sad that the value of my house went down. On the other hand, I’ll be very happy to have a large fixed rate loan. Let’s call my mortgage rate X%, and let us assume that rates go to X+5. Then I can invest money to earn at (X+5)%, which means my loan is essentially a $50k/year annuity. My only wish would be that I could make the loan even bigger. On t…

I don't know why you think home prices will go down if interest rates go up. they might not. especially in cities where everyone wants to go and where offer is low.

Supply and demand would indicate that higher interest rates would reduce demand. However.. demand is not ONLY driven by average cost. For people to straight-up not want to buy homes anymore would mean they'd need to move, or switch to renting. Prices may fall but I don't think they'd fall in lockstep with interest rates.

Re: Home Price to Income Ratio

#633

Post by twofornone » Tue, Sep 21, 2021, 3:05 PM UTC

taurath wrote: post #564

twofornone wrote: post #248

Earlier quoted context omitted.

>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…

I'm happy to hear that's your experience. My experience comes from being raised in such a place (not the south, just rural conservative), and fleeing to the nearest metro region as soon as I was able while growing up. That was a while ago though, and this was over LGBT things - a bit less about abject discrimination and more that it was impossible to even think about finding a date, and a fear of being found out with…

Well, to be fair, my experience is limited to a couple locales and only an hour or so away from major cities. I might have lucked out because I made a solid first impression on the community and don't have to worry too much about having the wrong opinions.

I suppose you could say that ruralites are more tolerant of intolerance in general, even when they individually may be welcoming. No argument about the flags around here...but I get the impression that, at least where I've settled, even if you're a little different, if you stick to your property and don't make waves nobody is likely to mess with you...and to be honest I kind of appreciate that sort of live and let live attitude, even if it requires some degree of conformity.

As far as I can tell, a somewhat rigid common culture is sort of the price of high trust living, where you can leave your doors unlocked and your keys on the porch. That doesn't justify violence against minorities/lgbt of course but... there's always the city for that I suppose. It's definitely a very different non-pc attitude around here. I certainly understand why a guy like Trump is so popular in these parts.

Re: Home Price to Income Ratio

#634

Post by rayiner » Tue, Sep 21, 2021, 3:09 PM UTC

GaryTang wrote: post #568

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…

As a brown minority who travels regularly all throughout the US, I believe your statement only rings true for minorities with strong politically left-leaning identities. The only reason that persuades me against stopping in any location is the price of gas is too high or there’s better food options in the next town. Additionally, I find the contrary to be more true — people in major cities generally make me much more…

That's an interesting point and I wonder what's the cause. It's possible that minorities who had bad experiences growing up in rural areas moved to urban areas and developed left-leaning political identities.

I think there's also an element of cultural mismatch. Trevor Noah has a great passage in his autobiography about how he could cross the intense inter-tribal antipathies in South Africa by speaking another tribe's language: https://www.josephineelia.com/power-of-language. Rural places in America are like places everywhere else in the world--you have to "speak the language" of the people in the place where you are. If you go to rural France and conspicuously don't speak French, you'll face hostility. Obviously in America we speak English everywhere, but if your mannerisms and attitudes give you away as an outsider, you might not get the same warm reaction as someone who knows the cultural cues.

Re: Home Price to Income Ratio

#635

Post by spywaregorilla » Tue, Sep 21, 2021, 3:31 PM UTC

civilized wrote: post #489

spywaregorilla wrote: post #391

Earlier quoted context omitted.

> 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.

Why would I lend you a million dollars only to be paid back over 30 years and have less than I started with at the end of the 30 years? I'd be better off doing nothing with the money.

Because you don't want to keep 1 million dollars under your mattress.

Re: Home Price to Income Ratio

#636

Post by [deleted] » Tue, Sep 21, 2021, 3:35 PM UTC

bogomipz wrote: post #619

fshbbdssbbgdd wrote: post #541

Earlier quoted context omitted.

Treasuries are some of the lowest-yielding bonds out there.

Yes and treasures are the only bonds that move in lockstep with 30 year mortgages. When people talk about the correlation between bond yields and mortgages those are exactly the ones they are referring to. US Treasuries also are considered among the safest, least risky assets out there. This is true globally and has been for a very, very long time. This is all succinctly explained in the link I posted above. Lastly b…

[deleted]

Re: Home Price to Income Ratio

#637

Post by topkai22 » Tue, Sep 21, 2021, 3:37 PM UTC

OJFord wrote: post #591

topkai22 wrote: post #468

Earlier quoted context omitted.

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 fal…

Yes, you can get a shorter term loan and have a lower interest rate- 15 years is also reasonably common, and fixed rate products exist at 20 and 10 years respectively. Adjustable rate and 5/1 or 7/1 products exist as well, but they aren’t as popular or encouraged by regulators, as they played a role in the 2008 financial crisis.

As to why go for a 30 year loan instead of a lower interest rate 15 year the answer is basically cash flow and opportunity cost. A 15 year loan may result in paying less interest, but the monthly interest + principal payments are more. Your average borrower will qualify for a larger 30 year loan because the analysis is based on their ability to afford the monthly payments based on their current income.

Even people who can easily afford a 15 year loan will choose a 30 year because the 0.5-1% interest rate is lower than the expected returns of something like stocks, so it makes sense to stay leveraged. There are also tax benefits to paying interest (but not principal) on loans, but these are way less important since the trump tax reforms.

And I just reread your question, and I think you are asking about 5/1 loans. The reason there is that a) interest rates so fluctuate, a lot- they were above 9% in 1991. With a 30 year, you can choose when you refinance (there is no penalty to paying off a home loan early in the US) whereas with a 5/1 you might find yourself getting forced into a higher interest rate- potentially much higher to the point it’s unaffordable. 5/1s also actually have a higher interest rate than 15 years currently, as they aren’t considered “conforming” to various US government programs.

Re: Home Price to Income Ratio

#638

Post by spywaregorilla » Tue, Sep 21, 2021, 3:40 PM UTC

lottin wrote: post #584

spywaregorilla wrote: post #391

Earlier quoted context omitted.

> 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.

Your home is not special. If the value of your home rises, the value of other homes also rises, which means for most homeowners an increase in the value of their home can't be turned into a profit.

If Alice buys a home for $100k and it appreciates $1M over ten years, and Bob rents for ten years for $100k, total. Alice has $1M more than Bob does. That isn't nullified if Alice chooses to buy a $1M home next. She can also go buy another $100k home instead and pocket the $900k. Bob, obviously, cannot pocket anything.

Re: Home Price to Income Ratio

#639

Post by jeffbee » Tue, Sep 21, 2021, 3:47 PM UTC

onlyrealcuzzo wrote: post #587

jeffbee wrote: post #218

Earlier quoted context omitted.

OK but this is not actually happening. Young, well-educated people with high incomes are the only types of people who continue to flow into California. They are driving out poorer and generally less-well-educated people, because of course that is how it will work in a competitive housing price market. See this report for details: https://lao.ca.gov/LAOEconTax/Article/Detail/675

The source just shows a net outmigration of taxpayers from California. It doesn't say that rich young people are replacing old. It just says that wealthy & older people are leaving in big enough numbers that there's a sizeable ourmigration. It's important to note that natural born residents have been fleeing California for a long time, and a substantial portion of the young, high paid workers are on H1B - so non-perm…

Doesn't sound like you scrolled down. The heat maps clearly show net in-migration of younger high-earners.

Re: Home Price to Income Ratio

#640

Post by dunk010 » Tue, Sep 21, 2021, 3:52 PM 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…

This is the case in the US because rates are the same for the length of the loan. This is decidedly NOT the case in the UK, where the entire market is composed of teaser-rate loans (2, 5, 10 year), which revert eventually and then need refinanced at the prevailing rate.

That's going to be a nasty wake-up call for a lot of people.