Americans don't believe middle class can afford homes • Hacker News Board

Re: Americans don't believe middle class can afford homes

#21

Post by wesselbindt » Tue, Jan 23, 2024, 5:23 PM UTC

betterprojects wrote: post #4

We can barely agree on what the definition of middle class is. A quick search shows one source quoting anywhere between $48,500 to $145,500 a year which is a very broad range. Part of this is cost of living varies significantly in different parts of the US. With the current average salary, average home price, and current interest rates, people aren't wrong that housing is very unaffordable in most places.

The notion of "middle class" is a convenient propaganda piece. Turns out most folks consider themselves middle class. So as a politician, you can score easy points by saying scary stuff like "the middle class is disappearing" or "I'm here to help the middle class". The moment you start using more meaningful classifications (for example proletariat, which has a precise definition), you alienate some part of your voterbase. I guess with a term like proletariat there's also the fact that it's one of the scary words that the bad people use, which might turn off voters.

Re: Americans don't believe middle class can afford homes

#22

Post by darth_avocado » Tue, Jan 23, 2024, 5:23 PM UTC

rco8786 wrote: post #8

SubiculumCode wrote: post #2

Well...they are kinda right. 3k a month mortgage when the interest rate was low, now I imagine it would be closer to 4k per month. Housing prices might not be growing as fast but I haven't seen them dropping.

A 4k payment is a ~$580k house at 7.5%. Median home price is $387,600 as of November '23, for a payment of $2716. Not to say things aren't tough out there. Just that a $4k mortgage is still 30%+ more than what people can expect to pay at the median. This ignores taxes and insurance of course.

$2716 is still 40% of your pretax household income at the median household income of $78k annually. Post tax, if you include all the other home ownership costs (taxes, insurance, upkeep), this comfortably exceeds 50% of your income, which is unaffordable at that income levels.

Re: Americans don't believe middle class can afford homes

#23

Post by Analemma_ » Tue, Jan 23, 2024, 5:24 PM UTC

burlesona wrote: post #6

We spent 40 years believing that house prices were fine because the debt load didn't matter because interest rates would go down forever. Prices are based on the seller extracting the maximum ability to pay from the buyer, so payments were effectively fixed, and every drop in interest rates was perfectly offset by an increase in the purchase price. Then we hit interest zero, there was nowhere left to go. Now we're fi…

> We're going to have to have a cultural shift towards housing as shelter, not investment.

We can't have this, because a huge fraction of household wealth is tied up in people's houses. If you stop protecting them as investment accounts, you nuke the retirement accounts of 100 million people.

To be clear, I completely agree with you that this system has to be dismantled before it gets worse, and a lot of this supposed wealth is illusory anyway: if your house has a "market value" of $750K but no millennial or zoomer can ever possibly pay that, it's not actually worth $750K. But making it actually happen is going to involve a huge, ugly political fight which you can't just handwave away with "we need to have a cultural shift". There are real material considerations at play here, not just culture.

Re: Americans don't believe middle class can afford homes

#24

Post by zwieback » Tue, Jan 23, 2024, 5:24 PM UTC

If you use the metric "price per square foot per person adjusted for inflation" it's not as bad. Part of the problem: household size has been shrinking and house size has been increasing steadily. That effect combined with the decrease of "good blue collar jobs" causes the crunch.

Re: Americans don't believe middle class can afford homes

#25

Post by dragontamer » Tue, Jan 23, 2024, 5:24 PM UTC

burlesona wrote: post #6

We spent 40 years believing that house prices were fine because the debt load didn't matter because interest rates would go down forever. Prices are based on the seller extracting the maximum ability to pay from the buyer, so payments were effectively fixed, and every drop in interest rates was perfectly offset by an increase in the purchase price. Then we hit interest zero, there was nowhere left to go. Now we're fi…

> Then we hit interest zero, there was nowhere left to go

Europe went to negative rates while USA did QE rounds actually.

Re: Americans don't believe middle class can afford homes

#26

Post by hasty_pudding » Tue, Jan 23, 2024, 5:24 PM UTC

monological wrote: post #16

Because they can't as a result of private equity firms and hedge funds buying houses for investment purposes. Without legislation, people are going to be renting for the rest of their lives like modern day serfs.

You will own nothing and be happy

Re: Americans don't believe middle class can afford homes

#27

Post by dsr_ » Tue, Jan 23, 2024, 5:25 PM UTC

Median household income (https://www.census.gov/library/publications/2023/demo/p60-27...): $74580

Median house price, per article: $388,000.

Today's average 30 year fixed mortgage rate is 7%. Assuming a 10% down payment, 0.5% to private mortgage insurance, and the usual bits and bobs, that approximates a $2800/month payment, or $33600 per year, which is 45% of that median income.

That's not affordable, by anyone's definition.

Re: Americans don't believe middle class can afford homes

#28

Post by jeffbee » Tue, Jan 23, 2024, 5:25 PM UTC

sokoloff wrote: post #11

If 66% of households are in owner-occupied housing, how small is this middle class that can’t afford homes? Is the median (or even 40th percentile) household not middle class? https://fred.stlouisfed.org/series/RHORUSQ156N

There is one rather large and serious problem with this statistic: it censors suppressed household formation. Because it is the tenure of households, there is no consideration for the households that aren't being formed, for example because an adult still lives with their parents. That person is counted under "homeowner" which is deeply misleading. The worse the housing crisis gets, the better this statistic looks.

Re: Americans don't believe middle class can afford homes

#29

Post by soco » Tue, Jan 23, 2024, 5:25 PM UTC

lucidguppy wrote: post #12

Feedback systems with long delays are going to be easier to destabilize than systems with short feedback cycles. There's a lot of "memory" in housing prices. Houses are just about the hardest item to build in America today. You need land, and you cannot make them in a factory. All cost cutting measures have been in materials (to the point where quality is degrading). Regulations push new players out of the market - i…

Healthcare and education are prestige items around there? Did I get this correctly?

Re: Americans don't believe middle class can afford homes

#30

Post by dragontamer » Tue, Jan 23, 2024, 5:25 PM UTC

Analemma_ wrote: post #23

burlesona wrote: post #6

We spent 40 years believing that house prices were fine because the debt load didn't matter because interest rates would go down forever. Prices are based on the seller extracting the maximum ability to pay from the buyer, so payments were effectively fixed, and every drop in interest rates was perfectly offset by an increase in the purchase price. Then we hit interest zero, there was nowhere left to go. Now we're fi…

> We're going to have to have a cultural shift towards housing as shelter, not investment. We can't have this, because a huge fraction of household wealth is tied up in people's houses. If you stop protecting them as investment accounts, you nuke the retirement accounts of 100 million people. To be clear, I completely agree with you that this system has to be dismantled before it gets worse, and a lot of this suppose…

> We can't have this, because a huge fraction of household wealth is tied up in people's houses. If you stop protecting them as investment accounts, you nuke the retirement accounts of 100 million people.

So the question is if the wealthy can remain wealthy, or if the poor can get houses?

I'm sorry, but... as a Catholic the choice is obvious to me. Blessed are the poor, etc. etc. We should favor those who don't have wealth yet.

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There's other investments, and any such large-scale buildup of houses will take place over a long-enough time period that investors can reallocate wealth appropriately (reverse mortgages and then move the money to the stock market or something). Talk to a financial advisor if you need help moving wealth out of your house and dumping that onto someone else.

Meanwhile, there's no actual solution to the young couple who needs a house for their next baby to raise their family. Get them a damn house. Period.