Home Price to Income Ratio • Hacker News Board

Re: Home Price to Income Ratio

#641

Post by ryathal » Tue, Sep 21, 2021, 3:55 PM UTC

bko wrote: post #433

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…

> 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 is one of the big dangers of having an essential need like housing cost such a large multiple of income. You could always walk away. Better to be under water on a mortgage than own it outright. This is called a strategic default. Lenders know this…

Being underwater is only a problem if you want/need to sell. Choosing foreclosure is a bad move, not having a choice is different.

Re: Home Price to Income Ratio

#642

Post by s1artibartfast » Tue, Sep 21, 2021, 3:56 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.

This assumes you continue to own a home, and own a home in the same market.

You can downsize, rent, or relocate to realize profit.

Re: Home Price to Income Ratio

#643

Post by s1artibartfast » Tue, Sep 21, 2021, 4:04 PM UTC

civilized wrote: post #507

ytpete wrote: post #501

Earlier quoted context omitted.

You wouldn't, but the government might - to keep the economy propped up. I think this is what parent meant, anyway. Not sure that's a healthy point for the government or the economy to get to, but with politics the way they are these days it doesn't sound that farfetched of an outcome...

If things get to that point, the government might as well just buy all the housing.

It has already been done.

https://www.investopedia.com/articles/personal-finance/05141...

Re: Home Price to Income Ratio

#644

Post by ryathal » Tue, Sep 21, 2021, 4:06 PM UTC

dfee wrote: post #431

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.

Is this true everywhere? Not that I think it’s a great idea to buy in the Bay Area, but a $3M 1800sq foot home for a family of 3 who works from home in a good school district… is that really available with 0% down?

0% down is impossible for FHA or Fannie/Freddy, but it may be possible as a private loan or through grants that give you the 3-5% down required.

Re: Home Price to Income Ratio

#645

Post by poulsbohemian » Tue, Sep 21, 2021, 4:09 PM UTC

quantumBerry wrote: post #354

kimburgess wrote: post #345

Earlier quoted context omitted.

While this is accurate, a more concerning secondary impact is the increased deposit. In Australia specifically, house prices are soaring. The most in-demand markets increases are currently ~$1200 per day [1]. For many people their home is a more 'productive' than they are, greatly outpacing their own earning potential. Those who already have wealth can buy in, or continue to buy in and leverage themselves into the ma…

Raw land is cheap. Housing codes are what keep people like myself out of the housing market. If I could just dump a yurt on the land, or a cabin like our forefathers, then housing prices would be a total non issue. But a bunch of selfish NIMBYs are so scared of the poors building a yurt instead of a 2000 sq ft brick house for two people and a dog, they'll never allow it.

FWIW: I sell real estate in two western states. If you can find cheap land, it's generally for the following reasons:

1) It's tiny

2) There's no water

3) It's not buildable given current zoning

4) Utilities are miles away / cost to attain utilities is prohibitive

Even in my area, where we still have lots of open acreage, the cost of bare land has jumped considerably in part due to zoning - yes we have land, but local authorities aren't going to let you start carving up farm land for subdivisions. There's a middle ground here and I'm glad that's the case rather than it being 100% preserve or 100% build.

Re: Home Price to Income Ratio

#646

Post by ryandrake » Tue, Sep 21, 2021, 4:22 PM UTC

topkai22 wrote: post #637

OJFord wrote: post #591

Earlier quoted context omitted.

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 ba…

> 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.

On the other hand, it probably reduces risk to take the 15 year loan if you can afford the payments, in order to more aggressively build home equity and shield yourself from a sudden shock/downturn. If rates shoot up after, say, 5 years (and home values drop 20%), someone who's made 5 years of payments on a 30 year loan will be way underwater, whereas someone who's made 5 years of payments on a 15 year loan still has positive equity.

Re: Home Price to Income Ratio

#647

Post by quantumBerry » Tue, Sep 21, 2021, 4:25 PM UTC

sokoloff wrote: post #605

quantumBerry wrote: post #428

Earlier quoted context omitted.

I'm not arguing against the progression of housing. I'm arguing to be able to build a house I can afford on land I own. Building codes serve to lock property owners out of the means to actually live on their own property. And even if these high rises become more legalized, it's a long time from that happening and institutional investors and large construction and architecture firms executing and them finally being so…

> Building codes serve to lock property owners out of the means to actually live on their own property. Building codes, or zoning requirements? Building codes typically cover things like fire protection, means of egress, ventilation, sanitary plumbing requirements, etc. While the requirement for indoor plumbing adds a small amount of cost to a dwelling, the zoning requirements (min, max square footage, setbacks, park…

The negative impact of zoning requirements don't negate the negative impact of building codes, they just add more fuel to the fire. However zoning requirements are far less egregious; you wouldn't put a daycare next to a massive toxic waste handling plant. Comparing that to me building a tin shack isn't even in the same ballpark, and I think pretty disingenuous.

>Building codes typically cover things like fire protection, means of egress, ventilation, sanitary plumbing requirements, etc.

Yes these things are all should be tossed out. If I'm a 60 pound midget I don't need the same means of egress as you; if I haul in water I may not need plumbing at all and maybe I only clean out the cat litter box with the water that is plumbed in . Maybe I don't cook inside the house; that reduces the risk of fire by half so maybe my risk of fire looks as good or better than my up to code neighbor who has a standard up to code house but cooks with grease all day, falls asleep with a cigarette in their mouth, and leaves their lighters out for their toddler to play with. These are all neat requirements "in the name of safety" that could of course save lives, but at the expense of massive loss of life for people working years (lost life) and possible homelessness to avoid the insane requirements. If my option is to absolutely slave away for 7 years to buy a house to code, or build my own shack in one year, then the opportunity cost is about 1/12th of a life lost to build the house. Is there a 1/12 chance somebody is gonna die in my tin shack? Remember I'm still criminally negligible if they do, there isn't some gotcha that you get to do something that kills someone else because the code doesn't mention it.

Outhouses and portajohns are what appear when the alternative is public urination/defecation. If the poor are zoned and coded out of a home, they're going to be urinating and deficating in your park rather than in an outhouse, sound better? Visit San Francisco to see the excellent results! By the way, the city has installed long term portajohns in a number of high density cities. I've seen them in Minneapolis and Seattle, as well as absolutely permanent ones in a certain city in Ohio.

Re: Home Price to Income Ratio

#648

Post by kolbe » Tue, Sep 21, 2021, 4:28 PM UTC

nly wrote: post #416

kolbe wrote: post #400

Earlier quoted context omitted.

Interest rates are extremely relevant when institutional investors are such large players in the real estate market. Also, the original submission noted that median homes cost 7x median income right now. That does not equate to 10 years of savings from responsible people. Also, 5:1 leverage is extremely generous, and in a free market they would never happen because it’s insanely risky to the lender. That’s ignoring t…

Yes, you're absolutely right. People with big piles of capital have a great time during times of low rates, whereas the cash poor working class (even those on high incomes) still get squeezed out by lending criteria and price inflation. > That does not equate to 10 years of savings from responsible people. I don't agree with this. If you're putting 40% of your take home in to rent and property taxes then saving only…

Only homeowners pay property taxes.

Depending on your income and where you live, saving 50% is totally doable. And since you’re into fanatical scenarios where home prices go up 50-70%, you should also apply the appreciation of the stock market to your savings (usually double or triple real estate).

Re: Home Price to Income Ratio

#649

Post by quantumBerry » Tue, Sep 21, 2021, 4:43 PM UTC

poulsbohemian wrote: post #645

quantumBerry wrote: post #354

Earlier quoted context omitted.

Raw land is cheap. Housing codes are what keep people like myself out of the housing market. If I could just dump a yurt on the land, or a cabin like our forefathers, then housing prices would be a total non issue. But a bunch of selfish NIMBYs are so scared of the poors building a yurt instead of a 2000 sq ft brick house for two people and a dog, they'll never allow it.

FWIW: I sell real estate in two western states. If you can find cheap land, it's generally for the following reasons: 1) It's tiny 2) There's no water 3) It's not buildable given current zoning 4) Utilities are miles away / cost to attain utilities is prohibitive Even in my area, where we still have lots of open acreage, the cost of bare land has jumped considerably in part due to zoning - yes we have land, but local…

1) is no barrier at all to a residence. Maybe 30x30ft is all you need at most for a small family sized structure.

2) Is only a barrier in rural areas, otherwise hauling in water into a tank is still a lot better than being homeless / having all your wealth extracted by a landlord.

3) is merely an artificial restriction created by the government. We shouldn't be restricting property owners from building a residence.

4) If you're already ok with living far from anything you can already find a few counties in the US with virtually unrestricted building codes and zoning, so this is a non issue.

I have found some land that only suffers from (1) and (2) and (4), that is close to a city, and has no building codes in a western state. It's been a long haul getting there because there are so few places in the US that allows it, and this is the only county in the country next to jobs I've been able to find it. Believe me, I understand, and truly lament how much we hate for people to freely build their homes here. We'll probably move there within the next 5 years, but it would have been a hell of a lot easier if everywhere was like that so I didn't have to slowly acquire jobs and contacts closer and closer to the one area like this. And now that I've _finally_ acquired the contacts in this area, and a job reasonably close, and my partner has obtained all the credentials to work in the area, they are talking about closing off the option of self certification of meeting code here! So we will be back to square one. This is how people get locked out of every owning a home, because frankly my family can scarcely afford to even rent a badly run down home in a bad part of town where we live currently.

You watch property prices rise and rise, the number of places allow bypassing codes dwindle. And then some asshole comes around saying "Well the codes and zoning are there to keep you safe!" What about all the years lost working to buy that "safe" house? It's better to risk a 1/20 death in a horrible house fire than it is the certainty I'll lose 1/10th of my life completely if I slave away to buy a slightly safer house. And these people also don't seem to realize I have an incentive to not kill myself or anyone else, code or no code.

Re: Home Price to Income Ratio

#650

Post by OJFord » Tue, Sep 21, 2021, 4:59 PM UTC

topkai22 wrote: post #637

OJFord wrote: post #591

Earlier quoted context omitted.

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 ba…

I didn't mean shorter term loan, just shorter fix. I think the answer is it just works surprisingly differently here (UK) vs. there (US).

Here a normal thing to do is something like 30 year loan on a 1/2/3/5 year fixed rate, after which it would be some relatively horrendous variable rate [^] - but you don't pay that, you just switch to a new fixed rate at the same or other provider (technically remortgaging).

So you're leveraged for the full 30 (or whatever) year term regardless, but you make some decision about how 'good' you think the rates are at the moment and what direction they're moving in (and pretend your adversary isn't a massive bank with a lot more information and smart people behind it) and fix for accordingly many years (more costing a slightly worse rate of course).

[^] - you could also just choose a variable rate to begin with, but that's not really relevant here, I just mean I think typically the rate you'd drop to after the end of the fixed rate would be worse than that, as in you're going to pay more spread over whatever it's tracking.