Home Price to Income Ratio • Hacker News Board

Re: Home Price to Income Ratio

#691

Post by conductr » Wed, Sep 22, 2021, 7:37 PM UTC

lottin wrote: post #580

conductr wrote: post #488

Earlier quoted context omitted.

> 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.

I’ve not seen that definition of inflation. I think you’re thinking of some type of equilibrium/market efficiency theory, where to support higher prices there has to be income growth, which is false especially in the short term where prices can rapidly rise faster than income could realistically keep pace and consumer is just worse off.

Re: Home Price to Income Ratio

#692

Post by mikeryan » Wed, Sep 22, 2021, 7:51 PM UTC

quantumBerry wrote: post #412

mikeryan wrote: post #408

Earlier quoted context omitted.

Raw land in most denser US urban areas is not cheap. There’s also huge incentives to build additional units. I’m Berkeley where I live it’s becoming more common to see developers buy a run down single family home and raze it and the city will allow you to build a 3 or 4 unit townhome in the space. Much of this forced by state laws, particularly if a unit or two is reserved for low income families.

The cheapest land on which you could build a yurt or small cabin (illegally) in Berkeley I found on realtor is 60k (it is pending sale). The cheapest house is well north of 200k. You could build your own yurt or cabin for only 10 grand. You're joking yourself if that isn't very cheap by comparison. [1] https://www.realtor.com/realestateandhomes-detail/55-Panoram...

That land is at about a 60 degree slope, doesn’t have street parking nor off street parking nor any utilities and crappy cell service.

Re: Home Price to Income Ratio

#693

Post by topkai22 » Wed, Sep 22, 2021, 7:59 PM UTC

ryandrake wrote: post #646

topkai22 wrote: post #637

Earlier quoted context omitted.

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 c…

Don’t discount how rare 20% price drops in housing are historically - a nationwide 20% price decline has only happened once since 1951 (where I could find statistics start) and even then would only have applied for purchases in a 1 year window. House prices are historically high across almost any metric you choose right now, so we could see another incident of that, but it’s also possible we could see real house prices depreciate with inflation while holding nominal value.

Re: Home Price to Income Ratio

#694

Post by spywaregorilla » Wed, Sep 22, 2021, 9:07 PM UTC

lottin wrote: post #686

spywaregorilla wrote: post #681

Earlier quoted context omitted.

If you sell your home for $1M more than you bought it, it would be fraud if you didn't consider it a gain.

If you sell it and become homeless, yeah. Otherwise you'll be buying a $100k home for $1M, which cancels out all the profits that you made from the sale.

That's not how profits work. Or accounting in general. If you sell for +1M and then buy a different home for $1M, you've recorded a gain of $1M. It doesn't matter if you spend it on another house or don't. Your balance of cash may stay the same, but you've still profited. And the gain is taxable.

Re: Home Price to Income Ratio

#695

Post by topkai22 » Thu, Sep 23, 2021, 4:21 AM UTC

Gh0stRAT wrote: post #684

ryandrake wrote: post #646

Earlier quoted context omitted.

> 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 c…

Homes are massive, illiquid assets with high transaction costs and (unless you have many of them) are poorly diversified. I'd even argue it makes more sense to look at a primary home as a forced savings plan rather than as an investment.

I disagree. It’s too big a chunk of people’s net worth to not analyze like a financial investment, if only to make one stop and think about them opportunity cost of buying at various price points and how much you are really spending to consume living in a nicer house (because there is definitely a consumption angle.)

A primary residence even makes a good component of diversified portfolio so long as it is not the sole or dominant aspect of that portfolio.

I understand your point about it being a "forced savings plan", but with 5-10x leverage on most loans even a housing market that appreciates at inflation can provide significant returns (or losses) in the long run.

Re: Home Price to Income Ratio

#696

Post by lottin » Thu, Sep 23, 2021, 7:41 AM UTC

conductr wrote: post #691

lottin wrote: post #580

Earlier quoted context omitted.

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

I’ve not seen that definition of inflation. I think you’re thinking of some type of equilibrium/market efficiency theory, where to support higher prices there has to be income growth, which is false especially in the short term where prices can rapidly rise faster than income could realistically keep pace and consumer is just worse off.

It's the standard definition, where inflation is a change in the price level, and the nominal GDP is defined as the real GDP times the price level Y×P. Since GDP is a just a sum of income components, of which one is wages, an increase in the price level implies a proportional increase in wages.

Re: Home Price to Income Ratio

#697

Post by lottin » Thu, Sep 23, 2021, 7:50 AM UTC

spywaregorilla wrote: post #694

lottin wrote: post #686

Earlier quoted context omitted.

If you sell it and become homeless, yeah. Otherwise you'll be buying a $100k home for $1M, which cancels out all the profits that you made from the sale.

That's not how profits work. Or accounting in general. If you sell for +1M and then buy a different home for $1M, you've recorded a gain of $1M. It doesn't matter if you spend it on another house or don't. Your balance of cash may stay the same, but you've still profited. And the gain is taxable.

That's the accounting profit. Suppose you keep the house, your accounting profit would be zero. If instead you sell the house, and buy it back immediately for the same price, now you have an accounting profit. From this example, it's obvious that the accounting profit can be misleading. What matters is not the accounting profit but the economic profit (aka actual profit).

Re: Home Price to Income Ratio

#698

Post by harambae » Thu, Sep 23, 2021, 1:26 PM UTC

0xffff2 wrote: post #300

ashtonkem wrote: post #193

Earlier quoted context omitted.

The data seems to imply that remote work is letting high paid workers move from the coasts to smaller cities, not rural towns. The persistent low prices of houses in rural America certainly backs this up. Meanwhile home prices in small cities are skyrocketing. > Like what? Many amenities and services have been moving to the at-home or online model for decades - arcades, movies, shopping, car buying, telehealth, etc.…

The price of houses in rural America seems to also be skyrocketing. My house 40 miles outside of the nearest "smaller city" (population ~20k) has gone up in value over 50% since I bought it 3 years ago.

The price of land in the middle of the desert east of San Diego (Ocotillo Wells, Borrego Springs) is skyrocketing.

It would be utterly impractical to live there most of the year. And yet compared to NFT's and some cryptocurrencies it's probably a great investment. There's definitely a bubble going on, I just don't know when it will end or why.

Re: Home Price to Income Ratio

#699

Post by woofie11 » Thu, Sep 23, 2021, 2:05 PM UTC

stana wrote: post #480

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…

"If I move out, and I rent out my home, it covers monthly payments approximately exactly." You cannot borrow for rent, so rents follow income growth more closely. So in some expensive real estate markets, if no income growth, rent might not cover your mortgage repayments.

Let's say mortgage repayment is $3000, and rent only covers $2500. Let's add another $500 in overhead. I'm paying $12k per year. $36k would break me financially, but $12k is a good investment, since at the same time, two things are happening:

1) I am one year closer to owning the home. Yay!

2) Inflation. Rents next year might be lower, but rents in 10 years will be higher.

Re: Home Price to Income Ratio

#700

Post by throw123123123 » Thu, Sep 23, 2021, 3:12 PM UTC

fshbbdssbbgdd wrote: post #494

throw123123123 wrote: post #485

Earlier quoted context omitted.

The problem is that in a scenario of rates going up, both houses and general stock investments will go down together. They rarely diverge.

If rates go up to X+5, then I ought to be able to find bonds that pay X+5, no?

If you had bonds before they went up, your bonds will crash. If you buy them after interest rates are up, it means you were in cash before and uninvested.

Im not sure I see the point in finding higher yielding bonds. Also they will have higher risk, its not "free" to have higher rates.