Why the government took home prices out of its main inflation index • Hacker News Board

Re: Why the government took home prices out of its main inflation index

#91

Post by thathndude » Fri, May 27, 2022, 2:22 PM UTC

jjslocum3 wrote: post #76

Mortgage loan officers (and also car salesmen) do all in their power to redirect people away from the fact that they're going to fork over e.g. $600k in total interest and principle for a $300k sticker-price house over 30 years. They do this by focusing on the monthly payment rather than the actual total spend. Convincing buyers that monthly out-of-pocket spend is somehow a proxy for the actual purchase price is a po…

I blame consumers for falling into the trap. I’m not saying the sellers don’t have a lot of responsibility here as well, but consumers need to be smarter.

It’s a pretty obvious play. I go into a dealership, and the first question the salesman asked me is “what do you want your monthly payment to look like.“ And I always respond with something (a little snarky) like “ I don’t care what my monthly payment looks like, I care about getting a good deal.” While a little snarky, I’m also trying to signal to cut the crap and let’s do business.

More consumers need to think that way. In the mortgage context, I think it makes a little more sense to focus on the monthly payment. However, when brokers are using 2 or 5 year ARMs to sell the “monthly payment,” that’s pretty unconscionable.

Re: Why the government took home prices out of its main inflation index

#92

Post by willcipriano » Fri, May 27, 2022, 2:22 PM UTC

jjslocum3 wrote: post #76

Mortgage loan officers (and also car salesmen) do all in their power to redirect people away from the fact that they're going to fork over e.g. $600k in total interest and principle for a $300k sticker-price house over 30 years. They do this by focusing on the monthly payment rather than the actual total spend. Convincing buyers that monthly out-of-pocket spend is somehow a proxy for the actual purchase price is a po…

I don't think that's entirely fair. When I bought my house 6 years ago I looked at the monthly payment and compared it to rent in the area. For my mortgage (and a small down payment) at the time I could rent something like a fairly run down three bedroom apartment or I could own a run down three bedroom house. If you can live somewhere for free you can think about it in those terms (and I think about smaller purchases like cars in those terms) but the monthly payment is a big factor when looking at alternatives. That house has gone up 50% according to Zillow but I wasn't planning on that, I just figured it was worth the down payment and upkeep to have the peace of mind that you wont get evicted because someone else bought the place and maybe get a little something when I move.

Re: Why the government took home prices out of its main inflation index

#93

Post by mschuster91 » Fri, May 27, 2022, 2:23 PM UTC

bitxbitxbitcoin wrote: post #47

mschuster91 wrote: post #35

Earlier quoted context omitted.

> home prices have been absolutely bonkers, with two massive bubbles (we are in one right now) Isn't the definition of a bubble that it has the capability to pop and then eventually pops? At least for urban housing, I see no way of that even being remotely possible, neither for the US nor here in Europe. Rural areas simply are too far left behind to support decent human life - no high speed Internet, no public transp…

The urban flight to the rural has just as many issues pushing it. Starlink also makes rural life more appealing for some even with all the other rural issues.

That only fixes the Internet part, but not the rest of the infrastructure issues which need a lot of investment to break the vicious cycle of neglected infrastructure, people moving and the tax base to fund the maintenance of the infrastructure eroding as a consequence.

Re: Why the government took home prices out of its main inflation index

#94

Post by notfbi » Fri, May 27, 2022, 2:23 PM UTC

kasey_junk wrote: post #25

recursivedoubts wrote: post #20

https://www.longtermtrends.net/home-price-median-annual-inco... nb that there is little relation to interest rates, which have been steadily declining since 82: https://www.freddiemac.com/pmms with the recent spike, we are currently at ~2000 interest rates, when homes were at 4x incomes, rather than 7+x home prices have been absolutely bonkers, with two massive bubbles (we are in one right now) and the fact that this…

The Case Shiller index shows affordability was similar in the early 50s to now, that was the heart of the baby boom so I think we can predict that won’t be the reason people don’t start families. The article actually mentions that on an inflation adjusted basis the monthly mortgage was the same now as in the early 80s (due to interest rate differences). It’s basically not true that housing costs are categorically dif…

In the early 80s with high inflation and therefore high mortgage rates, the first years of mortgage payments would be a relatively high percentage of income: it's very front-loaded. However, the debt owed quickly gets deflated away, so over the span of 25 years you're actually paying a much lower percentage of your real income. To take it to the extreme, if inflation was approaching infinity, and mortgage rates were 2% + inflation, your first payment would be 99.9% of the value of the loan, and all subsequent payments would be essentially 0% of your nominal income. Add to that fact that a downpayment went a lot further (if you saved to 50% of your median income, that was 20% down payment of median house), and affordability back even in the worst of the early 80s, while not great, was better than now.

Re: Why the government took home prices out of its main inflation index

#95

Post by chii » Fri, May 27, 2022, 2:24 PM UTC

sokoloff wrote: post #38

hnthrowaway0315 wrote: post #12

I think one should have one's own inflation index. Basically I'd layout the expenses (food, utility, mortgage, child day care, etc.) and go from there. Some expenses inflates every year (food/utility), some are fixed for 5 years and then maybe jump up/down (mortgage, depending if Fed is cutting or hiking rates).

That sounds like a budget , which is indeed a good thing to have but answers very different questions from a broad-based inflation calculation.

if they normalized the budget such that extra things not purchased in previous years is not taken into account, it could be used as a personal inflation measure. Normalizing the budget means you remove any life-style creep that gets in.

This way, you can look at your salary, and determine whether you're gaining income above your own inflation, or not.

Re: Why the government took home prices out of its main inflation index

#96

Post by thathndude » Fri, May 27, 2022, 2:24 PM UTC

Decabytes wrote: post #90

jjslocum3 wrote: post #76

Mortgage loan officers (and also car salesmen) do all in their power to redirect people away from the fact that they're going to fork over e.g. $600k in total interest and principle for a $300k sticker-price house over 30 years. They do this by focusing on the monthly payment rather than the actual total spend. Convincing buyers that monthly out-of-pocket spend is somehow a proxy for the actual purchase price is a po…

I was pleasantly surprised that Rocket Mortgage (Formerly Quicken Loan) actually has a calculator on the dashboard when I view my loan information that shows me how much interest I'll pay over the lifetime of the loan. I can even change my monthly payments and see how it will effect the lifetime interest of my loan and how much faster I will pay it off.

Under federal law, when you get your credit card bill, the bank is required to include a breakdown of, for example, how long you have to pay if you only make the minimum payment, and how much your total payments will be if you only make the minimum payment.

We need something similar and conspicuous for mortgages. Let people really see/feel the interest.

Another way I’ve seen it phrased is in terms of buying power, and I think that can be effective. I’m ball parking some numbers here, but I think I saw something along the lines of, for the same monthly payment you can buy a $275,000 house with 5% interest or a $350,000 house at 3% interest. I think that drives the point a bit

Re: Why the government took home prices out of its main inflation index

#97

Post by HideousKojima » Fri, May 27, 2022, 2:24 PM UTC

jjslocum3 wrote: post #76

Mortgage loan officers (and also car salesmen) do all in their power to redirect people away from the fact that they're going to fork over e.g. $600k in total interest and principle for a $300k sticker-price house over 30 years. They do this by focusing on the monthly payment rather than the actual total spend. Convincing buyers that monthly out-of-pocket spend is somehow a proxy for the actual purchase price is a po…

The monthly payment is often used because people are comparing the cost to rent, or the monthly cost of their current mortgage.

Re: Why the government took home prices out of its main inflation index

#98

Post by chii » Fri, May 27, 2022, 2:25 PM UTC

carlisle_ wrote: post #85

chii wrote: post #73

Earlier quoted context omitted.

> won't want to start a family while living in the relative instability of rented accommodation it should be alleviated by making rental accommodation more stable - such as a longer term contract. What if you had a 30 year contract rental (with built-in, but known ahead of time increases).

That’s just a mortgage with extra steps…

not the same - a mortgage require a deposit. Renting will be cheaper, because a deposit is basically a capital cost (that people comparing renting and buying don't take into account).

Re: Why the government took home prices out of its main inflation index

#99

Post by cozzyd » Fri, May 27, 2022, 2:26 PM UTC

HideousKojima wrote: post #97

jjslocum3 wrote: post #76

Mortgage loan officers (and also car salesmen) do all in their power to redirect people away from the fact that they're going to fork over e.g. $600k in total interest and principle for a $300k sticker-price house over 30 years. They do this by focusing on the monthly payment rather than the actual total spend. Convincing buyers that monthly out-of-pocket spend is somehow a proxy for the actual purchase price is a po…

The monthly payment is often used because people are comparing the cost to rent, or the monthly cost of their current mortgage.

Or their monthly salary/expenses...

Re: Why the government took home prices out of its main inflation index

#100

Post by hattmall » Fri, May 27, 2022, 2:26 PM UTC

book_mike wrote: post #60

Ignoring what the value of a currency may be I wish buyers would reject bad prices. I really care about what the actual cost of a thing is from dirt to package. The companies that market, make and deliver products should make a profit but I'm not buying their Ferrari. Capitalism start with "No deal, not at that price."

Capitalism begins to break down when the primary driver of purchasing power is availability of debt. Long term debt is particularly antithetical to the efficiencies promoted by a free market.

Add on the fact that a quasi-government body is the primary provider of that debt and not just through the central banking system but in many cases direct to consumers.